金德摩根 (KMI) 2018 Q2 法說會逐字稿

Welcome to the quarterly earnings conference call. (Operator Instructions) I would like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Thank you. You may begin.

Okay. Thank you, Sheila. Before we begin, as usual, I'd like to remind you that today's earnings releases by KMI and KML and this call includes forward-looking and financial outlook statements within the meaning of the Private Securities Litigation Reform Act of 1995, the Securities and Exchange Act of 1934, and applicable Canadian provincial and territorial securities laws as well as certain non-GAAP financial measures.

Before making any investment decision, we strongly encourage you to read our full disclosures on forward-looking and financial outlook statements and use of non-GAAP financial measures set forth at the end of KMI's and KML's earnings releases and review our latest filings with the SEC and Canadian provincial and territorial securities commissions for a list of important material assumptions, expectations and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking and financial outlook statements.

Before turning the call over to Steve Kean and the team, let me again offer a few thoughts regarding what I would term our financial philosophy at Kinder Morgan. As you will hear from David Michels, our CFO, KMI continues to generate large amounts of cash flow. In the second quarter alone, we generated over $1.1 billion of DCF, and that cash flow is growing with both our DCF and EBITDA increasing substantially for the second quarter compared with the period -- same period in 2017 and, in fact, on a year-to-date comparison. So we have strong cash flow and it's growing.

The task for management and the board is to make certain that this cash is deployed wisely and productively. As you know, we are doing these things. We're delevering our balance sheet. We're funding our expansion CapEx with internally generated funds. We have increased our dividend with further announced substantial increases targeted for both 2019 and 2020. And we've bought back shares. As stated in our earnings release today, we intend to use KMI's share of the proceeds from the sale of the Trans Mountain Pipeline, estimated at approximately $2 billion, to pay down debt.

In my opinion, using our cash for any and all of the purposes I've mentioned benefits our shareholders, and we will continue to use that shareholder benefit analysis as the litmus test on how to deploy our future cash flow. Let me just assure you, we will not foolishly waste our most precious asset, which is the cash we generate each and every quarter. Steve?

All right. As usual, we will be updating you on both KMI and KML this afternoon. I'm going to start with a high-level update and outlook on KMI, then turn over to our President, Kim Dang, to give you an update on our segment performance. David Michels, our CFO, will take you through the numbers. Then I'll give you a high-level update on KML, and Dax will take you through the numbers and a couple of other topics on KML. And then we'll take your questions on both entities.

We had a successful quarter on KMI and KML. Starting with KMI. We are having a very strong year. We are well above plan for the second quarter of the first half of the year. We expect to end the year at above -- at or above our plan. Our leverage continues to go down, and we are showing a 9% improvement year-over-year in DCF per share for the quarter.

Just as importantly, what's driving much of that improvement is strong underlying fundamentals, particularly in U.S. natural gas, where our volumes are up sharply year-over-year due to increase in U.S. supply and demand, including export demand. That drives value on our underlying assets as well as creating opportunities for projects. We expect those fundamental drivers to continue, and we are benefiting from it in our transportation and our sales business.

In addition to being the nation's largest transporter of natural gas, we also own and operate the largest collection of storage assets. The improving fundamentals have not yet driven up storage values, but we would expect to see that improve and contribute to our performance as well in the longer term. So very good underlying operating performance and year-over-year growth.

We've been saying for a while now that we want our leverage metric to be at or below 5x debt to EBITDA. We ended the second quarter at 4.9x, and that obviously is before closing the Trans Mountain sale at KML. Management and the board are of the view that proceeds KMI receives as a result of that transaction should be applied to further reduced KMI leverage, giving us greater financial strength and flexibility. We believe it should also put us well on our way to upgrade [Plant].

Getting to where we are to-date required intense focus by our whole team, focus on our day-to-day operations and maintaining cost and capital discipline without compromising the safety of our operation. It's also the result of improving performance in their business, which Kim will take you through.

On May 29, KML announced that we have agreed to sell the Trans Mountain Pipeline and the Expansion Project for CAD 4.5 billion or approximately USD 2 billion to KMI shares. We guided to a late Q3 or early Q4 close and agreed with the Canadian government on a restart of planning and construction activity to be funded by a government recourse-only credit facility. Everything is progressing as we said that. We have obtained some of the required regulatory approvals, and we're making progress on the remaining. We have set a KML shareholder meeting date of August 30. And we are still expecting that late Q3 or early Q4 close. We are having a good year.

I'll cover the negatives as well on KMI. First, we continued to weigh in on the FERC tax notice of proposed rulemaking. We continue to believe that the impact of that rule, even if it stays in its current form, will be mitigated and spread over time. We still estimate that the tax-only impact of the rule is about $100 million annually if fully implemented.

As an aside, the NOPR is not on the agenda for the July meeting. We don't have any special insight into why. We hope the commission will take, and we've been urging the commission to take more time to deliberate because this is a big issue, and there clearly have been unintended consequences from it. We think the design of the 501-G form is flawed and will produce an uninformative look at the appropriate cost of service for our assets. So if that process goes forward as is, everyone needs to keep that in mind as those forms come out.

Second, it's frustrating to see our strong fundamental economic performance this quarter overshadowed a bit by the impairment of our investment in gathering and processing assets in Oklahoma. These are not bad assets, but they are not as well positioned as our other assets, for example, in the Bakken and the Haynesville. And we have better risk-adjusted return opportunities elsewhere in the portfolio, like the opportunities we're pursuing in the Permian.

We will look into alternatives -- appropriate alternatives with respect to these particular assets. I'll also note that the value of our gathering and processing assets in the Bakken and the Haynesville is improving, but of course, you don't get to write those assets up. Notwithstanding this noncash accounting charge, we're having a very good year on the fundamental economics of our business.

And with that, I'll turn it over to Kim.

Okay. Thanks, Steve. Overall, the segments were up 8% versus the second quarter of '17, so very strong performance. Natural Gas had an outstanding quarter. Transport volumes on our large-diameter pipes were up 3.5 Bcf a day. That's 12%. Driven by increased supply from the Permian and the DJ and growing demand in the form of exports to Mexico, increased power demand, projects placed in service and some cold weather that occurred early in the quarter.

Overall, the higher utilization of our systems, a lot of which came without the need to spend significant capital, resulted in nice bottom line growth in the quarter and, longer term, will drive expansion opportunities as our pipes reach capacity. Gas and crude gathering volumes were up 7% and 19%, respectively, driven by higher production in the Bakken and the Haynesville, slightly offset by lower volumes in the Eagle Ford.

On the project side in natural gas, we had a few noteworthy developments during the quarter. Since we discussed Gulf Coast Express in this call last quarter, we've contracted the 6% of remaining capacity, and the pipeline is now 100% subscribed. Right-of-way acquisition is in process with mainline construction anticipated to start in October of this year and in-service still anticipated for October of 2019.

We announced a letter of intent with Eagle Ford and Apache to jointly pursue development of the Permian Highway Project, which is an approximately $2 billion, 2 Bcf a day project to move volumes from the Permian to the Texas Gulf Coast. Apache and EagleClaw will also be significant shippers on those pipes if we go forward.

Finally, on our Elba liquefaction project, we now anticipate the in-service will be in the fourth quarter of this year, approximately a 1-quarter delay, but that impact is factored into our meet-or-exceed guidance for the year, which David will take you through.

Our CO2 segment benefited from higher crude volumes and higher NGL and CO2 prices. Net crude oil productions are up 4% versus the second quarter of 2017. SACROC volumes are up 6% versus last year and are 6% above plan year-to-date as we continue to find ways to extend the life of this field. Currently, we're evaluating transition zone opportunities as well as off-unit opportunities that are adjacent to SACROC where we already own the mineral rights. Tall Cotton volumes were up versus last year but are below budget. For the full year, we anticipate overall crude production to be very close to plan.

Our net realized crude price is relatively flat for the quarter despite a higher WTI price as the increase in the Mid-Cush differential offset the increase in the WTI price. For the balance of the year, we have approximately 87% of the Mid-Cush differential (inaudible).

The Terminals business was up 3%, benefiting from liquids expansion in the Houston Ship Channel and Edmonton and the new Jones Act tankers that came online in 2017 and that are volumes on the bulk side. These benefits were partially offset by weakness in the northeast, particularly at our Staten Island facility that is now subject to a New York spill tax, making that facility less economic versus facilities in New Jersey, noncore bulk divestitures as we have reoriented our business to core hub position and lower charter rates on our existing Jones Act portfolio.

Bulk tonnage was up 16% in the quarter, driven primarily by coal and steel. Liquids volume was down -- the liquids utilization was down approximately 4% due to the Staten Island facility I mentioned earlier.

In the Products segment, we saw nice performance from our refined products business. Overall, refined products volumes were up 3%, well in excess of the EIA number. Here, we benefited from a refinery outage in Salt Lake that positively impacted our volumes to Las Vegas. But even after accounting for that impact, volumes were still nicely above the EIA numbers.

On the crude and condensate side, volumes were up 5% as we saw nice volumes in the Bakken due to economic spreads and in the Eagle Ford as shippers worked to meet minimum. Finally on the product side, ethanol volumes were up 10% due to -- primarily due to expansion projects on our southeast terminals.

And with that, I'll turn it over to David Michels to go through the numbers.

All right. Thanks, Kim. So today, we're declaring a dividend of $0.20 per share, which is consistent with last quarter's declaration, our 2018 budget as well as the plan that we laid out for investors last July. The annualized $0.80 per share is what we expect to declare for the full year and would represent a 60% increase over the $0.50 per share that we declared for 2017. Importantly, as we noted in our budget, we continue to expect that the substantial cash flow -- we still -- we continue to expect substantial cash flow in excess of our dividend despite that robust increase year-over-year.

As you've already heard, KMI had an excellent second quarter. Our performance was well above our budget and last year's second quarter. For the full year, as you've already heard, we expect to meet or exceed our DCF budget. With that, I'll walk through the GAAP financials and then move to the DCF -- the distributable cash flow financials, which is the way we primarily evaluate our performance.

On our earnings, net loss attributable to common shareholders for the quarter is $180 million or negative $0.08 per share, which is a decrease of $517 million in total and $0.23 per share versus the second quarter of 2017. More than all of that decrease came as a result of after-tax expenses of $647 million, which we categorize as certain items.

For those of you who follow us know, we define certain items as those items that are recorded in GAAP that are noncash or occur sporadically and are not representative of our business' ongoing cash-generating capability. Certain items this quarter were driven by a $600 million impairment of certain gathering and processing assets in Oklahoma, which Steve already mentioned.

So looking at the earnings adjusted for those certain items, the $180 million net loss would be a net income of $459 million, which is $155 million or 51% higher than the adjusted earnings of the second quarter in 2017. Adjusted earnings per share is $0.21 or $0.07 and 50% higher than that of the second quarter last year.

Now moving on to DCF. DCF per share is $0.50, up $0.04 or 9% higher versus the second quarter of 2017. Total DCF of $1,117,000,000 is up $95 million or 9% above last year's quarter. This very nice increase in DCF was driven primarily by the greater contributions from our natural gas and products segments as well as favorable cash taxes, partially offset by higher G&A costs, interest expense and sustaining capital.

Overall, the segments were up 8% or $137 million with Natural Gas up 11% quarter-over-quarter, contributing $96 million of that total improvement. Natural Gas segment benefited in multiple areas. Hiland and KinderHawk assets were driven by increased volumes from the Bakken and Haynesville. EPNG and NGPL benefited from Permian supply growth. Our Texas Intrastates were up on greater volumes and margin. And our TGP asset was up due to expansion in the projects placed in service.

The Products segments was up -- Products segment was up $28 million or 10%, driven by greater contributions from Plantation, Cochin and our KMST assets. G&A is up -- is higher $11 million due to timing of certain expenses. As you can see, we're about flat on a -- from last year on a year-to-date basis.

Interest expense is $9 million higher than the second quarter of last year, driven by higher interest rates, which are more than offsetting the benefit of a lower debt balance. Income attributable to noncontrolling interest is higher by $13 million when you add the NCI change with the change in the NCI share of certain items, and that was driven by the IPO of our Canadian asset last May.

Cash taxes are a benefit of $15 million, driven by lower taxes due to tax -- the tax reform benefit -- tax reform benefiting our subsidiary tax -- cash taxpayers. Sustaining capital was approximately $7 million higher than the second quarter of last year. We budgeted for this. We budgeted for sustaining capital for 2018 to be higher than 2017. And we're actually running a bit favorable relative to plan year-to-date, though that is expected to be offset by higher capital spending in the second half of the year.

So to summarize, the segments are up $137 million, offset by the $13 million for noncontrolling interests. Cash taxes are favorable by $15 million, offset by $11 million of higher G&A costs and $16 million of combined -- of the combined increase in interest expense and sustaining capital. Those items all together sum to $112 million increase in DCF versus the $95 million on the page. There are other moving pieces, but that gets you the big picture.

2018 is shaping up to be a very good year. We expect DCF for the full year to meet or exceed our budget, driven by better-than-planned performance from our natural gas and CO2 segments, lower cash taxes and lower G&A costs, somewhat offset by the sale of our Trans Mountain assets, which we expect to close later this year; higher interest expenses due, again, to the higher LIBOR rates; and lower performance in our liquids terminal business, primarily in the Northeast.

And one final note. The natural gas is -- well, natural gas is ahead of plan year-to-date and is expected to finish the year ahead of plan. The segments expect -- the segment expects to be impacted relative to budget in the second half of the year by the delayed in-service of our Elba Island LNG project, which Kim mentioned.

Moving on to the balance sheet. We ended the quarter at 4.9x debt to EBITDA, which is a nice improvement from last quarter and year-end, which were both at 5.1x. This quarter's metric would benefit some by timing as we would expect greater spend in the second half of the year relative to the first. However, we anticipate that greater spend will be more than offset by the impact from the close of the Trans Mountain sale. Excluding the impact from the Trans Mountain sale, we would expect to end the year below our budget of 5.1x.

Net debt ended the quarter at $36.6 billion. That includes the 50% share of the KML preferred equity. That's $11 million lower than year-end and $342 million lower than at the end of the first quarter.

To reconcile the quarter change, the $342 million lower net debt, we generated $1,117,000,000 of distributable cash flow. We paid out $621 million of growth capital and contributions to our joint ventures. We paid out $442 million of dividends. And we had a working capital source of cash of $288 million, the largest item of which is accrued interest. And that reconciles to the $342 million reduction in debt for the quarter.

From year-end, the $11 million lower net debt, to reconcile that, we generated $2,364,000,000 of distributable cash flow. We paid out $1,266,000,000 in growth capital and contributions to our joint ventures. We paid $719 million in dividends. We repurchased 250 million shares in the first quarter. And we had a working capital use of cash of $118 million mostly due to bonus and property tax payments in the first quarter.

And with that, I'll turn it back to Steve.

All right. Thanks. So turning to KML, the big news during the quarter, of course, is the CAD 4.5 billion Trans Mountain sale transaction. As we said at the time of the announcement, the sales price amounts to about CAD 12 per KML share. And on top of that, we have a strong set of remaining midstream assets in an entity with very limited debt and with opportunities for continued investment and expansion as well as the potential for a strategic combination. We are laser-focused right now on closing this transaction, and that process is going well. Now the KML board will be reviewing the use of proceeds alternatives, and we'll provide further guidance on that as we advance the transaction to close, again, also consistent with what we said the day we announced the transaction.

As pointed out in the release, while all options are on the table, we generally don't view it as attractive to KML shareholders for us to sit on a big pile of cash while management hunts around for a transaction to use it on. So we're strongly indicating there, I think, that we're going to look for the best alternative for KML shareholders, and that's what we're going to work through with the KML board.

And with that, I'll turn it over to Dax to take you through the numbers and a couple of other topics.

Thanks, Steve. Before I get into the results, I want to make a few general comments around KML. At this point, we expect the sale of Trans Mountain assets, as we said, will close at the end of the third quarter, beginning of the fourth following the necessary regulatory approvals. The transaction will obviously result in significant proceeds of approximately $4.2 billion after tax, and we will update you on how we plan to use those proceeds following the KML shareholder meeting to approve the transaction.

As we said in the press release, given that we're divesting of a material piece of KML, we're retracting the previous guidance that we provided and we'll provide an updated guidance, including more granular information on the earnings power of remaining assets around the time the transaction closes.

With respect to the future of KML, while the primary reason we set up KML, which was to be a stand-alone entity for funding TMX, is no longer relevant, KML will remain a viable company after the sale of TM closes as the residual assets are strong fee-based assets. Having said that, the KML board will be evaluating all of the options for KML and all of the options are on the table.

Now moving towards the results. Today, the KML board declared a dividend for the second quarter of $0.1625 per restricted voting share or $0.65 annualized, which is consistent with our budget and previous guidance. Earnings per restricted voting share for the third quarter of 2018 are approximately $0.02, derived from approximately $13.7 million of net income, which is down approximately $11.4 million or 45% versus the same quarter in '17. Stronger revenue associated with the Base Line Tank and Terminal assets coming online, incremental equity at AEDC associated with Trans Mountain spending and a onetime gain associated with the sale of a small asset was offset by incremental interest expense resulting from the writeoff of the unamortized costs associated with the canceled Trans Mountain construction facility. In addition, in the second quarter of 2017, we recognized a foreign exchange loss associated with the intercompany loans that was settled at the time of the IPO, such that the loss would not recur in 2018.

Adjusted earnings, which exclude certain items, were approximately $54 million compared to approximately $36 million in the second quarter of 2017. During the second quarter, there were 3 certain items. The first was the $60 million writeoff of the unamortized issuance cost of canceled Trans Mountain construction facility that I mentioned. The second was the roughly $3 million of expenses associated with the Trans Mountain sale. And the third was the $9 million gain associated with the sale of the small asset that I mentioned.

Total DCF for the quarter is $91.8 million, which is up $12.4 million from the comparable period of 2017 but unfavorable to our budget by approximately $7 million. That provides coverage of approximately $10 million and reflects a DCF payout ratio of approximately 63%. The primary reason for the negative variance to budget was that we actually budgeted for the gain on the sale of the assets that I mentioned, and that was treated as a certain item.

While we normally don't budget for certain items, we did budget for this gain. However, after we achieved the gain, we decided that, given the onetime nature of the transaction, we should treat it as a certain item, excluding the DCF.

Looking at the components of the DCF variance, segment EBITDA before certain items is up $19.6 million compared to Q2 2017 with the Pipelines segment up approximately $14.7 million and the Terminals segment up approximately $4.9 million. The Pipelines segment was higher primarily due to higher AEDC associated with spending on the project and slightly (inaudible) favorable O&M. The Terminals segment was higher primarily due to the Base Line Tank and Terminal project assets coming into service and higher contract revenues and renewals at the North 40 terminal.

On the Base Line Terminal project, we placed 6 of the 12 tanks into service during the first and second quarter. We expect that 4 of the remaining tanks will go into service in the third quarter with the final 2 coming in the fourth quarter.

G&A is higher by $3.3 million due primarily to higher costs associated with being a public company. Lower interest costs and higher preferred dividends largely offset each other. Sustaining capital was unfavorable by approximately $1.8 million compared to 2017 with higher spending on Trans Mountain offset by lower spending on terminals. Cash taxes increased by $1.5 million over the same quarter of 2017. We were not required to make estimated cash tax payments in 2017 but did make payments in Q2 2018.

With that, I'll move on to the balance sheet comparing the year-end 2017 to 6/30. Cash decreased approximately $12 million, which is due to $144 million of DCF, excluding AEDC of $25 million, which is noncash; plus $247 million of net borrowing proceeds; plus a $4 million working capital and other source of cash; offset by $322 million of cash [base] for expansion capital and $85 million of distributions [netted] for proceeds. Other current assets increased approximately $26 million primarily due to an increase in prepaid property taxes associated with midyear payments.

PP&E increased $357 million primarily due to spending on the expansion project. Deferred charges and other assets decreased approximately $60 million, which is a result of the writeoff of the unamortized debt issuance costs associated with the facility that I mentioned.

On the right-hand side of the balance sheet, total debt increased from 0 to $247 million with the $247 million being the sum of the approximately $115 million and $132 million line items you see. The approximately $133 million is the balance of the new $500 million working capital facility that replaced the canceled TMEP construction and working capital facilities and represents debt that will stay with KML following the closing of the transaction.

The approximately $115 million is the balance on the facility that we put in place with government of Canada to fund construction on the project and on the government's behalf from May 31 until the transaction close. The debt will go with the asset to the government of Canada without a purchase price adjustment. In other words, KML will not be responsible for the payment of this debt.

Other current liabilities increased by almost [$63 million] primarily due to an increase in TM Expansion approvals as well as income taxes payable. Other long-term liabilities increased by approximately $36 million primarily due to the receipt of [Western] stock premiums from shippers

Finally, I want to offer a couple of comments on expansion capital. On the Base Line Terminal project, we've now spent approximately $324 million of our share of the $375 million project total with approximately $51 million left to spend in 2018. You'll note that the $375 million total has been revised down from $398 million primarily as a result of general cost savings.

On the Trans Mountain Expansion, we spent approximately $1.25 billion as of 5/31, which is the date that the government started to pick up the tab, and another $41 million in June (inaudible) the government's account, for a total spend of approximately $1.3 billion paid as of June 30.

And with that, I'll turn it back to Steve.

All right. Thanks. And with that, we'll open up the line to questions on both KMI and KML.

(Operator Instructions) The first question comes from Colton Bean with Tudor, Pickering, Holt.

So just to follow up on the comments around KML there. So following the close of the Trans Mountain sale, you've highlighted the possibility of being acquisitive in the Canadian market. Given some of the recent deals and valuations we've seen, though, would you consider further divestitures if the interest is there?

Yes. Well, look, we will look at, again, all of the options. I mean, when you're talking specifically about M&A, I think there are a couple of considerations. Number one, this is an attractive set of midstream assets, and it does fit well with other entities. Number two, we're coming out of this with very limited debt on the balance sheet, which gives us a capacity even with a distribution of the proceeds. When you say divestitures, that probably -- an asset divestiture probably doesn't make sense from a tax standpoint, probably doesn't make sense from a business integration standpoint. We've got a good set of relatively integrated assets of -- remaining with the KML entity. But we'll look at all of the alternatives and including strategic combinations.

Got it. And I guess just switching gears to Permian Highway. So on PHP, the base design calls for a 42-inch pipeline. You all noted the possibility of a 48-inch line. We've seen some projects proposed with a similar diameter with up to 5 Bcf a day of capacity. Are there any physical limitations that would prevent that level of compression on PHP? Or is it more a question of commercial support?

Yes, I don't know how you get to 5 Bcf on a 48-inch, a pretty powered-up 48-inch. Fully powered-up 48-inch is about 2.7, roughly. That might be not -- so I'm not clear what context that's in. But, look, I think on PHP, the customer sign-ups and customer interest has been coming very fast. And when you think about -- it was just the fourth quarter last year that we signed up a 2 Bcf pipeline project going from the Permian to our Texas Intrastate system. And now we're in advanced stages on a second one of similar potentially larger size. It's really incredible and, I think, speaks to 2 things. One is the robust growth in the production out of the Permian but, secondly, the value of our downstream network in terms of giving customers good alternatives to get their gas to the Houston market, power demand, petrochemical as well as LNG in Mexico exports. So we're proceeding on that. We didn't put it in the backlog. We're not ready to FID, but we think sometime in this current quarter that we're in right now, we could have more to say about that.

And so the 2.7 there, is there any work that you'd have to do on the downstream side of this, thinking more so on the Gulf Coast as you're connecting into the legacy system?

Yes, there is some. It brings a lot of gas into the network. And so there is some downstream debottlenecking that would take place to make sure that we can get that gas dished off to valuable markets.

Got it. I guess just one last one here. So you highlighted incremental capacity sales for the Permian systems. Are you seeing any pricing power with regard to negotiated rates on either KM Texas or maybe El Paso as legacy contracts roll off there?

Yes. One important distinction -- so our Texas Intrastate system is not a FERC-regulated asset. That's important to know. And I think we're generally doing -- I'll turn it over to Tom to answer on the Intrastate pipeline. It's generally doing negotiated rate transactions.

Yes, negotiated rate transactions. And really, I think, we're seeing both on EPNG, NGPL as well, opportunities to sell at very, very attractive negotiated rate deals for at least a 2- to 3-year period. So some of these other projects (inaudible) projects come into service (inaudible) longer term (inaudible). So a lot of demand for capacity to get out of the Permian.

Our next question comes from Jeremy Tonet with JPMorgan.

Just continuing with the Permian here. And just want to check, is there any opportunities left on EPNG, NGPL, Texas Intrastate to kind of squeeze out any other incremental capacity? Or are you guys kind of fully tapped out on that side?

No, we're continuing to expand on all 3 of those systems. We've been doing some (inaudible). We are looking at others as well.

How -- I guess, how much -- how big could these be? Are they small? Or could they be notable? Some -- it looks like there's some big constraints coming up. I'm just wondering how much opportunity there is.

Yes, well -- so, Jeremy, starting with Texas, that's the biggest piece. Because if you look at the overall U.S. market, the higher-value market is on the Texas Gulf Coast now and -- putting aside New England for a moment. I mean, in terms of just the absolute basis differentials, you have a depressed price in the Permian in West Texas, and you have a very strong price in the Houston ship channel. Because that's -- Houston ship channel as well as the rest of the Gulf Coast because that's where all the incremental demand is. So all the gas, including gas from the Northeast, including gas down the Gulf Coast line of NGPL, including gas on brand newbuild pipelines that Tom and his team are working on, they're trying to get to our system and others in the Texas Gulf Coast. And so the biggest chunk by far is the 2 Bcf project that we're actively building as well as a 2 to 2.7 Bcf project that we've got in advanced development.

Great. Yes, it seems like even ahead of those pipelines coming online, there could be (inaudible) big bottlenecks. So I don't know if it's like 100 Mcf or it's bigger or smaller. Just trying to feel like how much relief could see there because there's concern that the production of gas in West Texas, if there's not enough takeaway, that could impede production growth rate.

Yes. There continue to be bottlenecks, and the infrastructure is trying to catch up to that now. And look, if you look at long term, all these projections are going to be subject to debate. But if you look at long-term projection, there's a long-term projection for a continued strong basis between the Permian and the Houston ship channel, and that's a consequence of just expected continued growth in oil and associated gas production. So we're trying to help our customers by debottlenecking those constraints a bit. But the growth in production continues to make those constraints and those differentials fairly persistent, which is a good thing for a company in the business of moving stuff from place to place. And it's also a good thing that we have, essentially, with our assets, we wrap the part of the market that's really growing in terms of demand on the Texas Gulf Coast and even Louisiana.

That makes sense. And then, I guess, just looking at the balance sheet. And if you are able to kind of get $2 billion of cash from KML to KMI, what type of target leverage are you looking for? You said you could be on uplook for upgrade there. Would you just -- would you look to buy back bonds or keep cash in the balance sheet for projects? And how do you -- how does this play into the buyback program? How much have you executed there?

Yes. I think what we're telling you, of all the alternatives that Rich has talked about in terms of the use of cash, we're trying to give you some guidance here that we think the best use of that in this particular instance is to further delever -- to further reduce our leverage. And so that's what we intend to do, and that's what we're telling you today.

So do you have kind of an updated...

As opposed to buybacks or something else.

Do you have a kind of targeted leverage ratio that you're looking to get to at this point? And is there room still left on your authorized buyback program?

Jeremy, look, we -- KML hasn't looked exactly what it's going to do with the proceeds. You've heard today that Steve said that they don't -- that we don't think it's a good idea to sit on cash and expectation of a hypothetical acquisition. So we're waiting on KML's decision. KMI has -- once we receive -- whatever proceeds we receive, we're going to use to pay down debt. And so I think there is -- once we have the answer to that, we will update you to the extent that we change any of our leverage metrics at that time. Today, we are not changing our 5x or better leverage metric.

It obviously doesn't take a genius to figure out that if you are reducing your debt by $2 billion or something in that range, that will have a material impact on the ratio.

It would be well below 5x.

It would be well below 5x. And at that time is when we would share any resulting targets.

And one last one if I could. The Eni arbitration ruling, is that kind of an NPV-neutral event for you guys? Or any more color you can share there?

I'll now add more color than what we have in the press release. It is -- it's under a confidentiality arrangement. For disclosure purposes, we can state essentially what we've stated here, which is that we had a result. The result was termination of the contract but also a substantial cash award to Gulf LNG.

Our next question comes from Jean Ann Salisbury with Bernstein.

Just a couple from me. The first one is, I've had a number of clients who had concerns about [AR] Permian Highway Pipeline partners' ability to fund their share of the project. Could this be a possible showstopper? Or would Kinder Morgan be willing to take a larger share if it came to that, assuming that customer contracts are there?

It's an attractive project to us. And so we would take a larger share, if that were an issue. We don't expect it to be an issue, though.

Okay. And then now that you're guided below 5x and U.S. oil prices in production have recovered, it seems like there's more room than in the past to sell noncore assets and reshape your portfolio a bit. When you look at your asset base, do you see a benefit in trimming in some areas where you don't have a huge presence? Or are you pretty happy with your portfolio as is and perhaps even view the diversity as a benefit?

Yes, generally, very happy with the portfolio that we have. We do continue to look at those things, so -- where they make sense. And John and his team in terminals have -- over a couple of years, they've pruned the assets to get his business lined up more toward the things that are the real hub positions as well as really strong positions in the bulk business. Tom has done a bit of that, too. I mentioned the Oklahoma G&P. That's not necessarily a divestiture, but JV or other alternatives we'll look at there. So we'll continue to look at it.

Okay. So maybe a bit about -- around the edges but not a strong desire for changes?

I think that's fair.

The next question comes from Shneur Gershuni with UBS.

Just a couple of questions, and some of them are re-asking some of the other questions that had been previously asked. But first, let's -- just starting with the TMX proceeds. So you've clearly outlined that you're going to pay down debt. That's the first priority right now. Given the fact that it's a chunky paydown of debt, and as you said, it would be materially below, when we think about 2019, 2020 and so forth, in a scenario where operating cash flows, after fully funding CapEx and the dividend, in the past, I think at the -- in your Analyst Day this year, you had said I think it was $565 million was available to buy back shares. Would that kind of be the approach that you would sort of take between '19 and beyond that if there's cash available after funding CapEx and dividends out of operating cash so that you would then direct it towards that? Or would you still want to get meaningfully below the chunky paydown of debt that you're sort of indicating right now?

I don't know what you mean by chunky paydown. Paying down debt is paying down debt, Shneur. But -- so once we have reached our targeted level of debt which, as Kim said, we will share with you once the distribution of proceeds is finalized, then I think we can give you a clearer road map to where we would be in the future. But our thought on this is we're delevering. We're strengthening the overall portfolio of the company in that respect. And as I said in my opening remarks, that still gives us the opportunity to do all these other things, all of which benefit the shareholders. We've already plugged in and anticipated substantial additional increase in dividends. We bought back $500 million worth of stock. We can do more of either one of those. And obviously, we will continue to fund our expansion CapEx internally. So it just gives us a lot more runway, I think, on a going-forward basis, which we can share with you after that distribution is made.

Great, okay. And so maybe 2 follow-up questions. First on -- sort of some follow-up on the Permian infrastructure. It sounded like you have some debottlenecking opportunities, and it sounds like some -- could be some compression here and there and so forth that can give a couple hundred [Ms] a day of new capacity. But at the same time, the plan is to bring on Gulf Coast Express. You're talking about potentially PHP. I mean, how do you balance between spending capital to debottleneck for what would be addressing a short-term issue versus cannibalizing a longer-term issue? Can we expect that these types of debottlenecking capital projects have a much lower multiple in terms of expected returns. I'm just trying to understand kind of how you balance those type of items.

Yes, those are very -- they're very attractive returns. But what we don't -- we do both. We do both. And I think the other thing that came up in our opening remarks but I want to emphasize here is the value that having that increased production and really the increase of supply and demand that we're seeing across our network, what that does for our existing system. So even without expansions, without deploying capital, even small capital investments, we're seeing the value of existing capacity improve and increase. People used to move on EPNG to the hub for free, right, and then aggregate for a downstream move. Now those little bits of capacity are all valuable, and we're getting value for them. And so it's the small projects like you say that are often done at very attractive multiples. It's bigger projects like Gulf Coast Express that are done at also attractive returns but clearly not the multiples you can get for some of the smaller capital projects. But it's also an uplift to the value of our existing network.

Yes, and just to add one follow-up on that. To the extent that it is a short-term opportunity because of volumes will ultimately move on Gulf Coast Express or on Permian Highway, we're taking that into account in our economics that we run to the extent that those short-term opportunities require capital. As Steve said, they don't always require capital.

So just to paraphrase, effectively, these short-term projects are high-return projects, but you also get operating leverage downstream onthose projects, which I assume you would also have that operating leverage once Gulf Coast Express and PHP come online. Is that the right way to characterize it?

Yes, I think that's fair.

Great. And one final question, just as follow-up on the pruning of assets, when you sort of think about even what has traditionally been labeled as core, are there any plans or any thoughts to further evaluate all of your segments? CO2 has always been one that investors have wondered if that's something that you're committed to in the longer-term basis. Has anything changed as you've gone through this evolution over the last 2 or 3 years?

Yes, CO2 is a good business for us. We have a scarce resource in the CO2 itself. We've got the infrastructure to get that to enhance oil recovery fields. We only enhance oil recovery fields. We also do of course third-party sales of CO2. And we've got a good EOR team that knows how to turn that CO2 into high returns for the capital that we deploy there. We are a shareholder-driven company, and whether it's little things or big things, we're going to look at what the best alternative and outcome is for our shareholders. But I think all of those things make this a business that we're happy to hold.

The next question comes from Tom Abrams with Morgan Stanley.

Just wanted to make sure I understood the Canadian kind of thought process. Because if the money stays at KML, it improves your balance sheet. If it's dividend to you, it improves your balance sheet. But part of the uncertainty is if it's used to make an acquisition, then that impacts your targeting or your debt level, if you will. And so without knowing really what you're going to do with the proceeds, if you're going to go joint venture or not or something like that, you really can't indicate what your overall debt level is going to be. Is that about right?

Well, no, not exactly. So Tom, the concern that you have about, well, if the cash is diverted into some kind of an acquisition, I think you have to think about that as that's very rare. And the other thing is because corporate transactions, you can't project them, you can't predict them. They come together -- if they come together, only when a lot of factors come together. And that's why we're saying what we're saying. We don't think that shareholders, KML shareholders appreciate management just sitting on the cash and saying wait for me to do something with it as opposed to having the cash in hand so that they can do something with it. And look, but as we said, all options are on the table. We're going to talk to the KML board about it and think about the best strategic alternatives as well as the best way to use proceeds. Look, this is a significant amount of money. This is a great problem to have. It's $12 per share for KML. And we want to make sure that we handle that, and KML wants to make sure that it gets handled in the best way for our shareholders. We're going to take some time to think, for example, about tax impacts on the shareholders who would receive cash or receive it in the form of buybacks, for example. There are some differences there. We want to understand those. And it's a big piece of this company, so we want to be thoughtful about it. But the good news -- and the very good news is that we've got a transaction that, once we close it, provides a substantial amount of cash, and we've got a very good problem to have, which is what's the best way to deploy it.

A couple of other questions real quickly. First, any steel tariff issues slowing procurement, slowing time lines on projects?

I think we're in good shape on Gulf Coast Express. And steel is something that we're looking very closely at, and we will be working very hard on, making sure that we've got adequate sources of pipe for the 42- or the 48-inch. And there is a distinction between those 2 diameters. There are fewer suppliers for the 48 than the 42. And normally, this would not be a consideration, but the steel tariffs are enough to make us spend some extra time to make sure that we've got a clear supply chain that gets that pipe to a set of predictable price and on time. And so it has an effect. It's created uncertainty, there's no question about it. And so it's an uncertainty that we are actively managing and working on. But we're in good shape on Gulf Coast Express.

Okay. And then I want to ask about this Jupiter crude project. And they're advertising you as one of their benefits because of connectivity to corporates in Houston as they head down to Brownsville, but they're also looking for a joint venture partner. And I was wondering if that project appeals to you at all.

It's not one that we've talked about or thought about.

All right. And then the last question is on the terminaling in New York. Is that something that's going to linger through the next couple quarters at least if that kind of continued to run off, if you will? And you won't have -- I'm asking if you'll have offsets to it, for instance, new tankers coming into the fleet or better volume somewhere else? Looks like they're going to have a headwind.

We have the baseline project that will be coming on, but yes, it will be lingering. Of our 3.6 million barrels that are unutilized right now, 900,000 is just tanks that are out for repair, API inspection. Leaves you 2.8 million left. 2 million of that is Staten Island. And it's all associated with a spill tax issue that was implemented a couple years ago that they rescinded the ability to have a rebate on. And so that has created a hole in our ability to re-lease the tanks. We are 100% utilized in Houston. We're 100% utilized in Edmonton, Vancouver and in other locations. But we do have an issue in Staten Island that will linger on until we can get that resolved.

And that's taken into account in our guidance for the full year of when we say that we'll meet our [to-date]. That's not weakness.

The next question comes from Keith Stanley with Wolfe Research.

On KML, are there any hurdles or concerns or tax issues that KMI would face if they elected to try to buy KML in once the sale is completed? Or is that a relatively straightforward thing to do if you went that route?

Yes, I don't think there are any incremental complications associated with it. So I don't think there would be. And again, I think just to highlight what we said, all options are on the table.

Okay. Back to KMI, any material addition to the growth backlog during the quarter?

The growth backlog was roughly flat when you look at projects added and projects placed in service. And again, that's without obviously the Trans Mountain change. But we continue to get -- find good opportunities and work on good -- and it obviously does not include the Permian Highway Pipeline Project. We continue to find good opportunities in gas, some incremental opportunities in CO2 and some small expansion opportunities in our refined products and liquids terminals business.

Okay, one last quick clarification. Just when you say you're in good shape on GCX on the steel tariffs, do you have an exemption request out, I think, for the pipe for that project?

We do. And we have an arrangement with our supplier that will resolve our ability to continue to get the pipe. And so that's why I say I think we're going to be all right on the pipeline GCX. We got domestic suppliers as well as -- it's actually more than half domestic-produced pipe for GCX. And then I think we're going to be able to get -- we are getting the pipe from the foreign supplier.

The next question comes from Darren Horowitz with Raymond James.

Steve, I apologize. I just want to go back to the Permian Highway real quick. You mentioned the operating leverage downstream of the pipe. We can all see the opportunity, either at Katy or Agua Dulce or Coastal Bend or even in the [Tejas]. But from your perspective, what's the best ROIC for you to physically take those hydrocarbons beyond those points, those receipt points or delivery points, to provide even a further increased netback to customers over the long term? And then as you guys think about capacity commitments on that line, recognizing the interstate asset systems over 7 Bcf. You got over 130 Bcf of storage connecting between this and possibly GCX. How much capacity on PHP do you want to have just for the Texas interstate business, under the scenario, like you said, theoretically basis could be wider for longer?

Yes. So first of all, when we make the arrangements with our customers, they get downstream connectivity with that deal. Now the downstream connectivity is on our network. And look, I think the right way to think about that, Darren, is we've got about a 5 Bcf a day system there today. And with Gulf Coast Express, we're bringing another 2 to it, and with Permian Highway, potentially another 2 on top of that or potentially more coming into that system and demand growing to soak it up. And so that puts us right at the center of the traffic between the biggest-growing supply resource and the fastest-growing market. And that's a good place to be in terms of enhancing our transportation values, our opportunity to purchase gas. And we do have some purchased gas on Gulf Coast Express to feed our sales business there and as well as on storage. So it's just a good -- it's a very good position for us to be in.

Steve, when you guys look at the amount of Permian supply growth converging on Waha in the impacted basis, beyond an upscale Permian highway and GCX, how much incremental pipe capacity do you think is necessary to keep pace with supply growth?

If you look at the projections in the Permian, there's still more to come. And what the best ways are to debottleneck and -- versus newbuild, I think, still remains to be seen. And are people really willing yet to sign up for long-term commitments that would fully commit a third pipeline? It's unclear. But right now, we've got a pretty good-looking opportunity on a second pipeline for us out of the Permian.

The next question comes from Tristan Richardson with SunTrust.

Just a question on the strong performance in midstream. Can you talk about new projects so far this year up north in the Bakken and prospects for further capacity issues there?

Yes, we have a lot of, I think, $300 million worth of projects left in the Bakken to expand our gathering system up there, both crude and gas looking at other opportunities to grow with our major producer there, Continental. And I think, longer term, there's likely to be a need to have a residue outlet on the transmission side, which we're certainly trying to take a look at that as well. So a lot of growth, a lot of opportunity up there. We feel really good about our position.

Helpful. And then just one small clarification on the PH Project as you guys firm up the potential scope there. Is the timing you guys have talked about, is that independent of the diameter you end up choosing?

Yes.

Yes.

Yes, it's about a year later, essentially, than Gulf Coast Express, so fourth quarter of 2020.

The next question comes from Dennis Coleman with Bank of America Merrill Lynch.

A few really just follow-ups, starting with PHP. As you sort of move the project forward, it sounds like we can expect to hear something maybe pretty quickly moving I guess towards FID. Is that sort of what I'm hearing?

Yes. And it's -- it looks like it's coming together in Q3. Now as always, it comes with a caveat that sometimes we're dependent upon the customers going to get some -- a board authorization or something else. And so sometimes those schedules can drift on us. But in terms of the demand and the seriousness of the demand, it's coming together fairly quickly in the quarter that we're sitting in.

Okay, great. And in terms of other shippers coming on to the line, are they also sort of chunky shippers like your anchors where they might be asking for participation? Is that a possibility?

Potentially. There's some -- still there's some very big chunks still out there to get. And we would look at each of those deals individually just like we do right now. I mean, we like owning and operating this project as well as Gulf Coast Express, but on the right terms, we would consider it as we did.

That makes sense. I guess, if I can shift to KML again and just make sure I'm again understanding all the things you're trying to convey here. When you say you're looking at all options and then you say also that the assets fit as a unit and would fit with other entities, I can't help but think an outright sale could be possible. And maybe if it were, it sounds like it would be sort of an all or nothing kind of thing. Is that an accurate interpretation of some of the messaging?

All options are on the table.

Okay, okay. But if it were -- well, I guess maybe just asking a different way, are you seeing incoming interest on the assets?

Yes, all options are on the table. I think we're going to stick with that. Look, I think you can look around at that sector, and there are some natural...

There's some transactions there as well, so...

Yes, and there are some natural fits, and this is a good set of assets. And there are people who it's going to be attractive to. And there are people whose assets are going to be attractive to this entity. And that's why -- and we're going to get expertly advised for the KML board on that.

Okay. And then lastly, I guess, I can't resist the credit rating question. It sounds like you're optimistic working towards an upgrade. And any comments you might make there on timing and conversations with the rating agencies?

We have regular conversations with the agencies. We had some conversations in advance of this call, and we'll have some after the call. We think we're -- we think with what we're disclosing here, we should be poised for at least being eligible for an upgrade but don't want to put anything ahead of the agencies. So we'll be talking to them in the coming days.

Okay, great. I guess -- and then I do just have one last one. On the FERC, you made some comments there and comments that there's nothing on the July agenda. But after that, then obviously, we're about to lose a commissioner. Any thoughts on that in terms of your projects that might need FERC review? Or just -- also just on implementation of what they did in March.

Yes. So first on the projects, don't see that as an issue. They'll still have a quorum. And the one thing you've really got to say about this commission is they -- once they got the quorum in place last year, they really started processing things and moving things along very effectively and caught up on their backlog and all of that. So I think that's all positive, and we'd expect that, that would continue. On what it means for the tax number, we don't know. I think there were, as we said, unintended consequences there, and this is a big thing. And so we would hope that they would spend a little more time deliberating about this rather than rushing it through. And I think that would be good for the overall success of what they're trying to do, but I think that would also be good for the companies under their jurisdiction. And so we're -- and it's not just us. A lot of companies urging them to do that and also urging them to fix some of the things that are in the NOPR as it's proposed right now. But we'll have a strategy for if it stays the way it is, and we'll have a strategy for if it changes, or we'll work for it to change. But in either case, we expect its effect, as we've said all along, to be mitigated and spread over time.

The next question comes from Robert Catellier with CIBC.

I just had a couple of questions on KMI, and I think I'd like to start with credit. I just want to understand what the pro forma company's credit profile will be. It looks like you have a new $500 million credit facility, but that might expire upon the sale of Trans Mountain. So if that's the case, what access to credit will you have pro forma?

We would put another one...

A new facility in place, yes, exactly. As I said, the government facility will go across -- clearly, we'll have working capital needs. And so we'll put a new facility in place after closing. And obviously the (inaudible) as well.

Okay. And then just going back to the question about what happens upon closing. How would you weigh keeping KML as a public company, now that its original intended purpose has changed, versatile and relevant, versus the advantages of simplifying the corporate structure.

Yes, that is -- I mean, keeping KML as a public company is absolutely one of the options. I mean it's smaller, clearly, as you know. But it's certainly strong enough to stand on its own. And it's a good business, and we've got good operations. It's a business that we understand and that John and his team can get the most out of. We've got a couple of expansion opportunities we're working on. I mean, that's very much an option for us. And so it is one of the options on the table.

The next question comes from Robert Kwan with RBC Capital Markets.

So it's clear you want to upstream the cash that you get on the sale up to KMI. I'm just wondering though, if that happens, is it kind of definitive from your side that the cash would also be paid out on the restricted voters? Or do you see a potential scenario where KMI gets the cash, but the cash is held say for the restricted voters but not paid out?

No, no. The way that structure works is both sets of shareholders are treated precisely the same, precisely the same.

Okay. Just turning to guidance. Understandably, you're withdrawing it to sort all the timing issues. But if you just drill down to the underlying assets, terminals, Cochin, has anything changed in terms of tracking against the original guidance for those assets specifically?

Yes, Robert, what I would say is there shouldn't be a meaningful change based on what we've walked you through since the IPO with residual assets. But if you can appreciate, we're obviously divesting half of the company. The majority of the employees, including our life insurance services employees are going. We got a cost allocation methodology that's going. And so we're having to sort of reconstitute the expense structure and everything. But again, we wouldn't expect that there's a meaningful change in the overall earnings power of the assets, first thing.

Got it. And just the last question related to that. There was a reference in you're withdrawing things like EBITDA and DCF guidance but also the expected declared dividends. Is that just because you're contemplating a potential special? Or maybe on the other side, if the residual assets become the going concern is there -- potentially you decide to rightsize the dividend, just for what you've got that's remaining?

Yes, I think we would put that in the bucket of we'll decide what we're going to do and update guidance at the time once we've made a decision.

The next question comes from Christine Cho with Barclays.

So I have some housekeeping questions. You guys talked earlier in Q&A about some flat capacity in Staten Island until there's a resolution. Can you just get into what the potential resolutions are?

There's a number of resolutions from cod idling it to leasing it out to a specific customer to shutting it down. We're evaluating all of those. It has a very small earnings impact overall, but it does have a meaningful impact on the utilization.

Okay. And then what drove the 1 quarter delay in the old [button] service date? And should we assume that all subsequent trains are delayed by the same timing.

Yes, first of all, there's some context here. So Train 1, once it -- there are 10 trains total. Train 1, once it's in service, attracts about 70% of the revenue. And so there's -- all I'm saying, Christine, is there's a little bit -- it's a little bit less of an issue for the subsequent trains, but we still expect, in Q3 of 2019, to be done with the entire project. The reason for the delay right now is kind of multifactor. I mean, there was a delay in getting the units assembled and then delivered to the site. And we had some construction delays as well. We've been active in our involvement with our EPC contractor, who has also been active in trying to address those. And we think we have the issues identified and enhanced. And -- but it -- we're -- we definitely are experiencing a 1-quarter delay. So we still expect to get this done. It's under budget. We got contingency remaining. It's still going to be a very economic project for us and our partners, but we have had this 1-quarter delay.

Okay. And then can you remind us, for the unhedged portion of your crude production and CO2, is that fully exposed to the Midland basin?

No. So in 2018, we have 87% of the Mid-Cush spread hedged.

Okay. And then the 13% is not?

And then the 13% of Mid-Cush is not, right.

Okay. And then last question, in the event that you -- it sounds like you guys are in okay shape for Gulf Coast Express. But in the event that you don't get a waiver for this deal for the Permian Highway Pipeline, should we think that the pipeline eats the cost? Or is the tariff going to be adjusted? How should we think about that?

Yes, first of all, it's not necessarily seeking a waiver in order to do it. It's really more making a decision about where we're going to get the pipe and making sure we've got a clear path to get it, not relying on a state department waiver of our ability to get the pipe or get this deal for that. We are working on making sure that our cost estimate is adequate and to make sure that we're fully protected. It is a competitive market, though, and so there is some limit on the ability to try to negotiate a pass-through arrangement with shippers.

The next question comes from Tom Abrams with Morgan Stanley

I just wanted to suggest that if you do close down Staten Island, I think that place could use a really massive waterpark.

We'll take that into consideration.

Duly noted.

But I wanted to ask, so if you -- on IMO 2020, if you got any preliminary thoughts on how your vessels might respond to that?

Our vessels are -- don't burn that type of fuel oil. It's all (inaudible). There's no impact on our business there.

The next question comes from Douglas Christopher with D.A. Davidson.

When we look at KMI and we see its recovery as a leader in the midstream and the funds and the profits, and you talk about your great attributes of the company being the strategically positioned fee-based assets, predictable cash flows, it seems like the CO2 business, I mean, you live with downside, and we don't realize the upside. Can you just add a little more color, help us understand why it makes sense to remain involved in that business?

Sure. Part of that business is -- so look at -- let's start with our overall segment earnings before DD&A. CO2 makes up, on a budgeted basis for 2018, about 11% of that. Of that 11%, that's split 4% and 7% between source of transportation, which looks a little bit more like a midstream business. That's where we're moving the CO2 into the market for our use but also for the use of third-party customers who are involved in enhanced oil recovery. That leaves 7% that's EOR. And as I said earlier, there is very economically recoverable oil out there at today's prices and even prices that are much lower than today's prices. The only way you can get that out is with C02. We've got the CO2, and we've got the deals, and we've got the EOR expertise. So it's an opportunity we kind of integrated forward into, if you will. We started with the pipeline, and then we added and enhanced oil recovery field. We get good returns in the business. It's a business that we understand. We hedge in order to make those cash flows more predictable for our investors. So it has more of a stable and predictable cash flow. Our production is very predictable there. We come within 1%, 1.5% of what we budget every year. And as I said earlier, notwithstanding all those good attributes, we are a shareholder-driven company. And if we found the right opportunity, somebody who's willing to pay us a sufficient amount and it was in the best interest of our shareholders, we'd obviously evaluate that. But for now, we're happy to hold it as well.

We are showing no further questions at this time.

Okay. Well, Sheila, thank you very much. And thanks to everybody for listening to a rather lengthy call. We appreciate your attention.

This does conclude today's conference. Thank you for participating. You may disconnect at this time.