Welcome to the Quarterly Earnings Conference Call. At this time, all participants are in a listen-only mode until the question-and-answer session of today's conference. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. You may begin.

Okay. Thank you, Natalie, and welcome to the Kinder Morgan quarterly analyst call. Before we begin, as usual, I'd like to remind you that today’s earnings releases and this call includes forward-looking and financial outlook statements within the meaning of the Private Securities Litigation Reform Act of 1995, the Securities Exchange Act of 1934 and applicable Canadian provincial and territorial securities laws, as well as certain non-GAAP financial measures. Before making any investment decisions we strongly encourage you to read our full disclosures on forward-looking and financial statements, and use of non-GAAP financial measures set forth at the end of our earnings releases, as well as review our latest filings with the SEC and the 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. Let me begin the call by saying that at the end of 2015 we made a very difficult decision to reduce our dividend for the first and only time in KMI's history. We said we would work hard to strengthen our balance sheet and fund our growth CapEx from our internally generated cash flow without having to issue equity or additional debt. And that when we had made sufficient progress on those goals, we would begin to return additional value to our shareholders through some combination of dividend increases and/or stock repurchases. Since that time, we have reduced our debt by approximately $5.8 billion and funded all of our CapEx out of operating cash flow while paying a dividend of $0.50 per share per year. Today we are happy to announce multiple steps to return significant value to our shareholders. We plan to increase our dividend for 2018 by 60% from the current level of $0.50 per year to $0.80 per year beginning with the dividend payable for Q1 of 2018. We then expect to continue to increase the dividend by 25% per year '19 and '20, resulting in a dividend of $1.19 and $1.25 in 2020. Additionally, our board today authorized a $2 billion share buyback program also expected to begin in 2018. We intend to take these steps while continuing to strengthen our balance sheet by funding all our growth capital needs at KMI out of operating cash flow without the need to issue equity or incur additional debt. We expect to maintain best in class coverage for our dividend, for example about 2.5 times coverage in '18 and two times or better in '19 and '20. To sum up, we intend to fund our growth CapEx needs at KMI from internally generated cash flow and return excess cash to our shareholders through a growing dividend and share repurchases. And with that, I will turn it over to Steve.

Okay. Well, that’s the big announcement. I am going to take you through KMI performance highlights and then turn it over to Kim Dang, KMI's CFO, to take you through the financials. Following that, I will update you on KML and turn it over to Dax Sanders, CFO of KML, to give you the KML financial update, and then we will take your questions on both KMI and KML. So starting with KMI. We had a good second quarter and a good first half of year. Performance was a little better than planned for the quarter and the first half of the year. As we said on the first quarter call, recalling that timing and expect to be essentially flat to plan for the year after adjusting for the impact of the IPO of 30% of all of our Canadian pipelines and terminals assets as a result of the IPO. Also, we have now completed the two key steps that we outlined at the beginning of the year to strengthen our balance sheet and put us in a position to return value to shareholders as Rich told you. Number one, we completed that JV of our Elba Island liquefaction project in the first quarter. That was consistent with our budget assumptions. And in this quarter we secured acceptable financing for our Trans Mountain expansion project. With those steps now complete, we project to end 2017 with a debt to EBITDA ratio of 5.2 times versus the 5.4 we projected at the beginning of the year. It's worth noting a couple of things from the KMI perspective on KML. By creating an entity with all of Kinder Morgan's existing Canadian assets and taking that entity public, we established a business that is broader than the expansion project. These assets include our…

Thanks, Steve. We are declaring a dividend today of 12.5 cents per share consistent with our budget. On the performance let me hit the high points first and then I will take you through the details. I will start with the GAAP numbers and then I will move to DCF, which is the way that we look at and think about the numbers and performance. Earnings per share and adjusted earnings per share are both flat versus the second quarter of 2016. DCF per share which is the primary way we judge our performance, is a penny lower versus the second quarter of 2016, or approximately $28 million, primarily attributable to the sale of 50% of SNG, the KML IPO transaction in which we sold a 30% interest in our Canadian assets, as well as higher sustaining CapEx and cash taxes. For the second quarter and year-to-date DCF per share is ahead of our budget but that’s largely timing with sustaining CapEx being the largest contributor. For the full year, after the impact of the KML IPO, we would expect DCF to be on budget. Taking the impact of the KML IPO into account, we expect DCF to be less than 1% below budget. On the balance sheet, we ended the quarter at 5.1 times debt to EBITDA, down from 5.3 at the end of last year and at the end of the first quarter as a result of paying down debt with the approximately $1.25 billion in net proceeds that we received from the KML IPO. Our debt balance for the second quarter came in lower than what we expected, primarily because some expansion CapEx got shifted from the first half of the year to the second half of the year. Therefore, we still expect to end the year…

Okay. Now we are going to turn to KML. I will give the update and then Dax will take you through the numbers and also couple of key updates. So just a reminder, KML consists of all of the Kinder Morgan Canadian pipelines and terminals assets. So those include our existing Trans Mountain Pipeline system which runs for and is the only outlet for Alberta crude to a world oil market price. It also includes of course, the Canadian $7.4 billion expansion to triple the capacity of that system. KML also includes the Puget Sound system which takes oil from the Trans Mountain Pipeline and delivers it to Northwest Washington State refinery. A market that we would expect to grow over time. KML includes the Canadian portion of the Cochin system which delivers condensate to Alberta for blending with the oil sands crude for transport. Crude comes down from the oil sands to our merchant terminal position in Edmonton, among other places, where it can move down Trans Mountain or third party pipeline, or through one of our joint venture crude by rail facilities. We have built our Edmonton position over the last ten years and continue to expand it with our Base Line Terminal joint venture with Keyera, which is the Canadian $366 million investment to our share. That’s on time and on budget with the first tanks coming on line in January of 2018. Finally, Vancouver Wharves, our multi-commodity bulk terminal in Vancouver harbor and the Gateway terminal for mineral concentrates both coming into and out of Western Canada is also part of KML. So in all, KML is comprised of two strong, existing business platforms that are integral to fulfilling the transportation, blending and storage needs of producers and refiners. They have substantial upside associated with Trans…

Thanks, Steve. Before I get into the results and outlook, I want to highlight a couple of occurrences on the bank capital markets project. First, we received our initial ratings from the agencies and consistent with our expectation we received a rating of BBB from S&P and BBB high from BBRS. On the financing front, as Steve mentioned, we closed on a financing package that consists of $4 billion base facility, a $1 billion contingent facility, and a $500 million working capital facility. All of which positions us well to access the significant portion of the capital we need to build the Trans Mountain project including accessing the Canadian pref market as we discussed on the road show. As I move in to review of the results, I want to preface my comments with the caveat that while I will be offering quarter-over-quarter comparisons, those comparisons are of limited value at this point given that we are reporting a quarter where KML was owned by the public for a part of the quarter and will be compared to a quarter where it was wholly owned by KMI and during those periods part of the IPO there were shareholders loans in place that generate significant effect, most of which is unrealized interest and other items not reflective of the true earnings power of KML. Therefore, we would ask you to focus on the outlook for 2017 which you will see is consistent with what we discussed on the road show. Quarter-over-quarter variances will mean over time and obviously we don’t have a published budget for KML as a standalone company but starting with our budget cycle this year we will published one just as KMI does. Now moving to the results and outlook for 2017. Today we are announcing that the…

Okay. We are ready to take questions on both KMI and KML.

Natalie, if you will go ahead, we will take questions now.

[Operator Instructions] Our first question comes from Jean Ann Salisbury from Bernstein. Your line is now open.

So now that the IPO is now behind you, I was wondering if you could give a little more color on the contract process that you are wondering -- sorry, that you are running. And how you decided on the IPO and anything in hindsight that you would have done differently or maybe just communicated differently?

No. We were, I think very clear in that we were pursuing both projects simultaneously and we were maintaining a certain amount of competitive tension as a result. So we fully prosecuted both processes simultaneously. I think the considerations around the IPO that were attractive were project governance. I mean you can only have one driver of the car when you are executing on a project of this magnitude. Certainly we viewed the value proposition as good. We thought that by combining all of our Canadian assets into one entity, we are creating a very attractive prospect for the market and had the ability to self fund the capital needs of the entity going forward. So, overall, it made sense for us to do the IPO and that’s the result we ended with.

And could you just give a little more color on why you decided to do this between the share buyback and the dividend raise. I know you had many trajectories that you could have followed.

Yes. So we think that we are generating cash that’s in excess, that’s surplus. So it's in excess of our needs for our capital projects while we are building them out and so we see the room to return essentially all of that excess cash to shareholders. And which shows a significant dividend increase. I think that’s a very positive for shareholders, but also a share repurchase which is kind of unique in our sector that gives us the ability to be opportunistic when we see an opportunity to purchase -- to return value to shareholders through a share repurchase rather than locking it all in on the dividend increase. So we think it's a good mix of ways to return capital to shareholders, return value to shareholders. Substantially growing dividends, still very well covered, extremely well covered as Rich pointed out, with a buyback program as the backstop which gives us some flexibility to take advantage of opportunity.

And I would add that opportunistic purchases of shares is certainly something we would be interested in, particularly since right now our share to DCF ratio is about five turns below our peer group average. So we think that’s mispriced in that sense.

Our next question comes from Brandon Blossman from Tudor, Pickering, Holt and Co. Your line is now open.

Sounds like a pretty good day on your side of the call. So, I guess, let's start with KML. A decent equity currency there. Clearly there is a little bit of equity funding to come but maybe it's too early and not a fair question, but where do you see that entity ultimately going to in terms of public float, size? What kind of strategic things could you do with that particular entity over time?

Yes. So first in terms of the public. We do not intent as KMI to sell down additional shares from our interest. But the entity may do primary offerings to help raise the capital needed to fund its expansion. We also talked about on the road that it is a good currency and there are opportunities on the M&A front that we would like to consider. And we will do that. Those are very hard to predict or to call, or forecast, as you know. But we think there are some good opportunities out there and we like a lot of the assets that we see in Western Canada. So I think it is a good currency. We think it will help us raise capital and also maybe an acquisition currency.

Got it. Nice answer. More detailed question. Gulf Coast Express, what is the timeline to getting that into the backlog as you see it today?

Yes. As I said, we are trying to ripen some very strong interest into firm agreement. We think that that is a matter of weeks to months in order to get that done. Again, we think we are making a very good offering to the market out there. We provide good takeaway capacity from Waha into South Texas where it connects with our intrastate system which we are very proud of. It reaches all the key markets that I think producers will be looking for takeaway. Houston ship channel is now a premium market in the gas market and that’s driven by the fact that we have got LNG, power gen, pet chem development and Mexico demand. That pulls very hard on our system. And so we think we have a very fine offering and there is a strong degree of interest in it but we are not counting it until we got them all in.

Our next question comes from Shneur Gershuni from UBS. Your line is now open.

Just a couple of quick follow up questions. Just for starting off with Jean's question about the buyback versus the dividend. I guess kind of -- I was wondering how much did the current stock price and your current multiple relative to peers play into the decision to shoot for a buyback. And then I was wondering if you can comment about the duration or the expectation of how long it will take you to execute the buyback. Is it something we should think as ratably over three years or something that you would like to achieve sooner than that?

Well, I think first of all what we have given you is an outline of the future for the time period '18,'19 and '20. So I think you can expect it over those three years. Obviously, we will be opportunistic in the way that we utilize those funds for stock repurchases. But we think this is a very strong combination of having a dividend increase that is substantial, 60% next year and 25% in two years after that. Together with some fire power reserve for opportunistically buying back our own stock. While at the same time, funding all of our expansion CapEx with internally generated funds. And you know that really does two things. It keeps a very nice ratio of coverage of the dividend which I think is important. And, secondly, it continually improves the balance sheet because we are using our own internally generated funds to produce assets that will generate more EBITDA. So I think it's a win-win all the way around the horn and that’s our reasoning process.

Okay. Good answer. And as a follow up question with respect to Gulf Coast Express. I know there is a lot of interest in the open seas and from your prepared comments 2019 sort of seems to be the target. Do you sense if that can potentially be brought up sooner than that, just given the level of interest? And any sense on how much would it cost, kind of like an estimate per mile that we should be thinking about.

We are in a competitive situation and we are not giving you our cost estimates for reasons I am sure you understand. I think, look producer timing is a little bit different. It varies from one to another and there are some shippers who are more in a hurry than others. And because we are talking about a Texas intrastate build not a FERC certificate build, we may be able to accommodate earlier in service states for those customers who are in a bigger hurry. At least giving them to some market outlet. And so we are definitely in discussions about how we can go about doing that. And having it as a Texas intrastate project gives the flexibility to do that that we wouldn’t have in an interstate natural gas pipeline project.

Okay. And just two little housekeeping questions. On TMX, is there sign offs you need from BC to keep the construction date on schedule, and do you have the CO2 spend for the quarter?

You want to give the CO2 spend first?

Sure. CO2 spend for the quarter was 118 million including our overhead allocation.

Okay. And Ian Anderson, President of KML is here and he can answer your question on BC.

Yes. On BC, as you know we have got our primary environmental certificate from BC, we got earlier this year. And we continue to need a good number of local permits from British Columbia and Alberta for that matter as they relate to crossings, road crossings, utility access, crown lands etcetera. And those permits are continuing to be advanced and filed and work continues on them with British Columbia and with Alberta in line with our construction schedule that will have us commence in September.

Our next question comes from Ted Durbin from Goldman Sachs. Your line is now open.

Just following up on that last question. I guess, we do have a new government and it does seem that they are opposed, it sounds like, to TMX expansion. I guess how are you going to navigate some of the objections that have been brought up by this new government. What road blocks or obstacles might we need to watch for as you move forward into construction.

Yes. Ted, as we said, the permitting process is ongoing. It's continuing to progress and we feel comfortable with that in line with our construction plan. I am not going to speculate on what an NEP government might do in British Columbia at this stage in order to advance their views. We remain very confident in the federal decision that we have and the jurisdiction that the project has federally. I have worked cooperatively with several provincial and federal governments over the years of the development of this project and I want to do the same with Premier Horgan's government. I do look forward to talking to him soon and updating him on the project and our ongoing commitments to engage with communities and first nations as that’s a project that’s in the national interest. So I think we will just wait and see what Premier Horgan wants to do and I look forward to his call.

Okay. Great. And then if I can come back to the buyback and not just buyback versus dividend but buyback versus, call it organic growth. I guess would you be buying back shares now given the choice of using your capital there versus sanctioning a new project at, let's just say the average build multiple. Maybe seven times build multiple that you have in backlog right now. How do you think about that choice?

We think about it in terms of the return for the capital that we are deploying. And we think at the current stock price that is an attractive investment opportunity for us. We have a significant build out which we have already accounted for in our backlog in determining what the surplus cash was and have the flexibility to add additional projects to it. But the commitment we are making is that over and above the cash that we need in order to invest in capital projects, we are going to return essentially all of that to shareholders. It's going to be in the form of a dividend but also in the form of share buybacks where those make sense.

Okay. Great. And then one last one and I just wanted to be clear on this. There is a mention of Kinder Morgan Canada being self funding. Does that imply that you will no longer consolidate the debt that you will incur to build TMX or is that still going to come through in terms of your debt to EBITDA calculation.

No. We will consolidate KML. We will consolidate the EBITDA, we will consolidate the debt. And so that will be in our numbers. What I meant by self funding is, I mean we don’t expect at this point that KMI will have to contribute equity into KML or buy KML's equity. It is another way to say it, in order to help KML fund the expansion project.

And just to be clear, those numbers starting from $6.1 billion remaining funds necessary to construct were Canadian dollars numbers that Kim was mentioning. So I think she gave you, Ted, a pretty clear path showing how KML really will be self funding.

Our next question comes from Darren Horowitz from Raymond James. Your line is now open.

Congratulations on the enhancements to enhance shareholder value. My first question, Steve, with regard to the Permian gas volumes at Waha in the South Texas, and you all have done a good job outlining this. But can you just give us at least a rough sense of what you think the scale and cost of EPNG capacity expansions could look like and more importantly, how you balance committing capacity on that line versus Gulf Coast Express. Obviously if Gulf Coast Express, at least by our math, gets committed to 1.7 and 1.8 Bcf a day, it's going to be north of a billion dollar project. That’s going to have a different return threshold relative to what you can do on EPNG, again by our math. And then bigger picture, do you think logistically, it's just a situation where the magnitude of downstream demand pull out of Waha could handle both the potential for 1.8 Bcf of commitments on Gulf Coast Express talk with Dulce as well as scaling up EPNG.

Okay. Good questions. So the key thing to understand is really the expansions on EPNG are really complementary to the Gulf Coast Express project. So the EPNG expansions are about getting gas to Waha and just simplistically I mean what Gulf Cost Express is about is by getting gas away from Waha to the premium market that is now in East Texas. And so they are very complementary. In terms of the capital on EPNG, as I mentioned, we have got some fairly significant volume opportunities, one tranche of which is out in an open season right now and then potentially at subsequent open season. And these numbers like 500 million a day [comp] [ph] on one of the open seasons. And there isn't a significant amount of capital that’s required. So think of things like just being able to direct more gas to Waha by installing back pressure valves and additional meters and the like. Those are relatively modest capital expenditures and so we think very attractive and, again, very complementary to what we are trying to accomplish on Gulf Coast Express.

As a follow on, Steve, how much of a competitive advantage is it of yours that you guys can help backstop not only the capacity on Gulf Coast Express but also some of these expansions, the complementary expansions on EPNG. Just given the fact that you guys can buy one plus Bcf a day of gas across the system.

Yes. And we think it gives us an advantage and it is on both ends of this system. As you point out, EPNG has a nice network in the Permian and to the extent we can feed additional gas to Waha, which we believe we can at attractive returns for the small amount of capital that we would spend there, that’s going to help set that, provides a good supply end for Gulf Coast Express. And then on the market end, as I mentioned, we think we have got an excellent Texas Intrastate system that’s tied in with Mexico, LNG, pet chem demand, power demand, Houston ship channel industrial demand, and utility demand in the Greater Houston area. It's a great network with great connectivity. And so Agua Dulce used to kind of be in the middle of nowhere. You can get to Agua Dulce and now you can get to Houston which is all of a sudden really somewhere in terms of value for the gas molecule.

Our next question comes from Craig Shere from Tuohy Brothers. Your line is now open.

You said about no borrowings just for growth CapEx. Was that intended to mean through 2020?

Yes.

Okay. And is that -- do you think that’s long term efficient or are you questioning the size of your growth CapEx.

No, look in developing our dividend policy for the next three years which we are unveiling this afternoon, we looked at our expected capital needs from now through 2020, and obviously concluded that we had room to raise the dividend and still fund all of our capital needs internally and we use the excess to buyback share. So that’s all factored in and we anticipate that we will continue to fund all of that growth capital with internally generated funds. I think we sometimes miss on all the noise what a huge consistent generator of cash flow this company really it. And I think what we are talking about this afternoon really demonstrates that when you look at what we are talking about in terms of being able to maintain a significant capital expenditure budget and still increase the dividend and still have some money left over for buying back shares on an opportunistic basis.

So the other important aspect to that Craig is that it helps us continue with some natural delevering and continue to strengthen the balance sheet. So for the longer term, and we have been saying this for a while, what we are really aiming for is a strong investment grade balance sheet and we expect to see some natural continuing delevering there. We are not done with that. A growing return of value to our shareholders in the form of a growing and well covered dividend and share repurchases, both of which we discussed today, announced today. And then having the continued capacity to fund new capital investments. And so we think that we have struck this right in terms of what's going to create value for our shareholders overall.

Well, Steve or maybe Kim, if you want to chime in. Do you see at the end of this three year timeframe getting to a point where you don’t really need to worry about enhancing the balance sheet? Maybe it would be more opportune into the next decade to start funding half of growth CapEx for opportunity sets, let's say seven times EBITDA with some low cost debt.

Yes. Absolutely.

Well, that sounds good. And then my last follow up. All this kind of is predicated on the ability to sustain long-term new project origination. Can you comment in the quarter about the specifics about the gas pipes and CO2 projects originated and can you opine about the recurring opportunity set to get to that $2.5 billion a year figure. Do you see the EPNG and Gulf Coast Express that you have talked about as kind of indicative of the opportunities in front of you and that there will be more of that over time.

Yes. So narrowly we have been constantly kind of reallocating capital and adding some capital to CO2 where we see good returning project. In gas we had a project for an LDC customers as well as some gathering and processing CapEx that got added, and what that was offsetting was in the terminals business we had taken delivery of a ship that’s now under charter, has been under charter. So those were the small pieces. But really as I said, you know if you, particularly in gas we are seeing opportunities. Gulf Coast Express is kind of the headline one but we are seeing good opportunities that are being driven by power demand, the need to connect power plants, to some extent by gathering and processing, but also Mexico, and LNG. And so we are seeing the need, I mean natural gas demand and production is growing over the longer term and that’s going to drive some opportunities for us. And we have a great network. And so that means it doesn’t have to be a Greenfield expansion. It could be an expansion off of an existing that is better. It could be an expansion of an existing part of our network where we can potentially gain higher returns. So we are starting to see that, I would say particularly in the natural gas sector.

Our next question comes from Jeremy Tonet from JPMorgan. Your line is now open.

Just wanted to dig in a little bit more on the repurchases. Did you guys say what date that would start and kind of any more color you are willing to provide around what level would make sense to repurchase? Sounds like between current level is about [indiscernible]?

We announced over the timeframe of 2018 to 2020, and so that’s the time for you over which we are talking. As said earlier, we think our shares are a good investment at current prices and we are looking to return essentially all of our cash in excess of capital needs to our shareholders and with the dividend level we have set today, with the capital opportunities we see today, we believe that’s going to leave a substantial amount of cash that’s available for share repurchase over the period. And then finally we do expect to be opportunistic which means we will be price sensitive in how we do our share repurchases. We haven't set a target price and we are also not just going to be mechanically buying at the market. So those are broad parameters I know but I think we have given a pretty good set of guidance on $2 billion share buyback program over this three year period.

Great. Thanks for that. And just wanted to follow up on the capital markets. It sounds like you guys don’t need to access equity or debt markets because surplus cash flow is going to cover all your growth CapEx. Would it be fair to say you would only go to the market to something kind of upside materializes and you wanted the capital for that?

What we are trying to do is position ourselves -- what we have done is position ourselves not to have to access the capital markets, whether that’s debt or equity. You know it's hard to project whether there might be some set of circumstances in which that makes sense to do but what we have done is make sure that we don’t have to.

And we will be accessing debt markets to refinance maturing debt but what we are talking about here is financial growth CapEx.

Great. And just one last one. Just wanted to follow up on TMX timeline extension. Just want to see, when is activity really going to pick up for the construction? Have you guys ordered the pipe yet or how should we think about the CapEx outlay that came out there?

Yes. As far as the construction planning goes, we have initiated our first pipe order. We are finalizing our contracts with our general contractor and I expect those to be finalized sometime between now and middle of August. Construction activity will commence in September, according to plan. We won't have mechanical construction of the pipeline underway until early next year and that was all was the plan, and that’s all in line with the completion date of the end of 2019.

Our next question comes from Chris Sighinolfi from Jefferies. Your line is now open.

Just have a couple of follow ups on some of the topics already hit. I guess to start, the dividend and share repurchase questions. Obviously not trying to pin you to any firm commitment in terms of timing or cadence, but the KMI old dividend increases were nearly a quarterly event. So I am just curious if you are planning to sort of resume that type of cadence or pivot to like an annual step up that a utility company, for example, might do.

It's an annual step up. What we are saying is and we said in the release that the increase, for instance, next year is going to be $0.56 to $0.80 that will begin with the first quarter next year. So in other words the dividend that we pay for the first quarter of 2018 will be $0.20 and it will be applied for the year. And then again we would anticipate taking that from $0.80 to a dollar and then a dollar to $1.25 and we would just flatten that out over the year.

Okay. All right. And then I think I understand it but just want to clarify, in terms of the authorization. I guess I am a little bit curious as to how the board determined the magnitude of the share repurchase authorization. It sounds like, but I don’t want to read in if this is not what you intended, it sounds like $2 billion is where the number that you could envision executing or exhausting between 2018 and 2020. Is that the right way to interpret that or was it just a nice round number that we can have out there.

Well, it is a nice round number but you have interpreted it correctly. That’s, look we gave a lot of work, hundreds of hours, Kim and her team with input from all of our business segments to develop this on the bottoms up basis. And when it came out with, we stress tested, we looked at it from a lot of different vantage points, and this we thought was the optimum structure and that’s the number that came out in the wash. We will see how all this plays out over those three years but that’s certainly our game plan, as we said, is to take the dividend up and have that amount of money left to buyback shares. And again very importantly, continue to improve the balance sheet because we are funding our capital expenditures out of cash flow.

Two additional questions, if I could. Just a clarification on KML side. I guess the point around, obviously the consolidation. So, Kim, just to clarify, your comment about $3.1 billion of expansion CapEx, that was sort of the net to KMI portion but what we should see represented on the cash flow statement is a consolidated figure over time.

That’s right. So I think in our Q we have put in a CapEx table in there. The CapEx that we are expecting for the year and we are going to break it out between KMI and KML because we will be consolidating KML so that you can see the total consolidated and you can see the KMI only piece.

Okay. And then related to, Steve -- I think, Steve, that question about KML financing strategy. I know in the S-1 you guys were talking about maybe preps and maybe some distribution recycling. I was just curious, I know you said you are not planning to sell down KMI's interest but do you have any refined guidance as to what you are planning to do with the cash distributions on the KMI's own portion. Does that get recycled at all or is that...?

Yes on the KMI piece we will probably do 25% of our distribution we will reinvest.

Okay. And do we just think about that then, Kim, as you effectively using that to buy additional equity but it keeps the cash on the balance sheet up there to fund the program.

It's funding the expansion CapEx, yes.

Okay. And then just final question for me. Does the debt fair value adjustment figure came down precipitously in 2016. It's been hovering around $1.1 billion for the last couple of quarters. Just curious, as you go through the refinancing, as debt maturities come up and you place new debt to replace that, should we see that number continue to drift lower or any guidance as to how we can think about that might be helpful.

Well, the debt fair value number moves for a number of different reasons. One, as interest rates move, and two, as our credit spreads move. And so if you can, knowing where interest rates are going to go, you have to know where interest rates are going to go and where our credit spreads are going to go to be able to predict what's going to happen with that over time. And so, I mean if you look at where we can finance a ten-year right now, we can issue around 4%. And the maturities that are coming up in the near-term are going to be at higher rates than that.

Our next question comes from Michael Blum from Wells Fargo. Your line is now open.

I guess first question is, you previously talked about a five times target for leverage. Is that still the target and if so what do you think is the timeline to achieve it now.

Well, I think that is the target and I think we have made substantial progress towards that target which is why we felt comfortable with the dividend and share repurchase guidance that we are giving today. If you look at our debt balance at 9.30 of 2015 with the end of the last quarter before we reduced the dividend, we paid down $5.8 billion. Over $5.8 billion in debt since that period. And so now I think the deleveraging is going to come through two methods. One as EBITDA grows, as these projects come on. And two, because we are funding our projects with 100% equity because we are funding it with the retained cash flow. And so we will continue to make progress towards the five times, but it's going to be a little slower in reducing that leverage than we have been to date because we are returning some value to shareholders at this point in time given that we have a little bit more flexibility with our balance sheet.

Okay. And then for your dividend guidance out to 2020, you gave some coverage targets as well. What are you assuming for growth capital as a run rate from 2018 to 2020 to sort of pay out that dividend, maintain the coverage, the buybacks etcetera.

It varies by year. And so, basically we ran off the backlog and then we made some assumptions around what we thought opportunities would look like. So we did put in some unidentified capital in there and to the extent that we have had a high probability project that weren't in the backlog, we would have included those as well. So we tried to take a holistic look at what we thought CapEx would look like going forward, not just running after backlog.

Can you say what the kind of average annual is for the three years?

I don’t remember what it was, Michael.

Our next question comes from Linda Ezergailis from TD Securities. Your lines is now open.

I appreciate the update on the Trans Mountain expansion, permitting and construction timeline. I was just wondering if you could maybe also give us a sense of what might define the tempo of construction in terms of potentially any sort of gating factors tied to permitting or other considerations that might affect the pace of construction. Or what sort of slack you have built in to account for some uncertainties?

Yes. I think, Linda the way to think about it is that commencing this fall, the bulk of the work is going to be preparation for major construction commencing next year and that was all was the plan. So the permit acquisition and the priority of permitting activity is built around that. So I think that you look at what you need to do to prepare to construct and with things like clearing and terminal work and preparation of sites etcetera. So that’s the kind of activity that we will likely be involved in this year commencing in September, with more the heavy lifting occurring early next year.

Okay. Thank you. And would you be able to perhaps stratify the remaining $6.1 billion cost between parts, labor and anything else?

I don’t have that right in front of me, Linda. Obviously, the bulk of the cost, our labor cost, the bulk of those cost will be incurred in '18 and '19 with the peak sometime in later '18. But I don’t have it stratified to any degree than that.

Yes. So I think that, if you look at it, the construction is still to come, so that’s going to be construction, equipment, materials, all of those things. The amounts that would have been spend to this point would have been more around land acquisition and permitting cost and the like. So now the costs going forward are going to be more of construction and materials and equipment. Construction including labor.

Our next question comes from Becca Followill from U.S. Capital Advisors. Your line is now open.

Just following up on Michael's question. You are targeting I think 5.1 times debt to EBITDA at the end of '17. Target is to get to five times. If you are funding 100% of your capital needs with cash flow, that seems like that would take you well under or just slightly under the five times going into 2018. So you would already be there. Then you have access to cash. So can you help me reconcile that with a buyback over a three year period and the target of five times.

Yes. First of all, I think what we have said is, we are at 5.1 times today at the end of the second quarter. So we would expect to end the year at 5.2 times that we ended the quarter on our debt balance a little bit lower than we were expecting because some of our expansion capital flushed to the second half of the year. I think we are still on target to end next year at 5.2 times -- end '17 at 5.2 times. Then next year on a fully consolidated basis, we are going to show the Trans Mountain revolver, the Trans Mountain construction facility in our number. And so our debt to EBITDA numbers will be bearing the full load of the expansion CapEx. And so it will take some time, even though we are funding all of our other CapEx with 100% equity, it will take some time to bring that down to 5.0.

Speakers, there are no questions in queue at this time.

Okay. Well, thank you very much, everybody. We view this as really important day at KMI and we are glad you were here to ask your questions. Thank you.