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]. 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 [Operator Instructions]. 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 decisions, 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 to 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 few thoughts regarding what I would term our financial philosophy at Kinder Morgan. As you will hear from David Michaels, 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 was growing with both our DCF and EBITDA increasing substantially for the second quarter compared with the same period in 2017, and in fact on a year-to-date comparison. So we have strong cash flow and it's growing. Cash from management and the board is to make certain of that cash is deployed wisely and productively. As you know, we are doing these things; we're de-levering our balance sheet; we're funding our expansion CapEx with internally generated funds; we have increased our dividend with further announced substantial increases targeted to both 2019 and 2020; and we bought back shares. As stated in our earnings released today, we intend to use KMI’s share of the proceeds from the sale of the Trans Mountain pipeline estimated 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?

As usual, we will be updating you on both KMI and KML this afternoon, I am going to start with a high level update and outlook on KMI then turn it over to our President, Kim Dang, to give you an update on our segment performance. David Michaels, our CFO, will take you through the numbers. Now, 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 or above our plan. Our leverage continues to go down and we are showing 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 increasing 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 large 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…

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 in longer term will drive expansion opportunity if 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’re contracted the 6% of remaining capacity and the pipeline is now 100% subscribed. Right away 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 EagleClaw and Apache to jointly pursue development of the Permian Highway project, which is an approximately 2 billion 2 DCF project to move volumes from the Permian to the Texas Gulf Coast. Apache and EagleClaw will also be significant shippers on the site 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 one quarter delay, but that impact is factored into our…

All right, thanks Kim. So today, we are 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 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 flows 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 non-cash or occur sporadically, and are not representative of our business’ ongoing cash generating capability. Certain items this quarter were driven by $600 million impairment of certain gathering and processing assets in Oklahoma, which Steve already mentioned. So looking at the earnings, adjusted for those certain…

So turning to KML and the big news during the quarter of course is the $4.5 million Canadian Trans Mountain sale transaction. As we said at the time of the announcement, the sales price amounts to about CAD12 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. The KML board will be reviewing the use of proceeds alternatives and will 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 are 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 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 to sale Tran Mountain -- as we said, we’ll close at the end of the third quarter beginning in 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 close. With respect to the future of KML, while the primary reason we setup KML which was to be a standalone entity for funding TMX, is no longer relevant, KML will remain a viable company after the sale of TM closes as 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 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 net income, which is down approximately $1.4 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 one-time gain associated…

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

Thank you. We will now begin the question-and-answer session [Operator Instructions]. The first question comes from Colton Bean with Tudor, Pickering, Holt. Your line is open.

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. We’ll look. We will look at, again, all of the options. I mean, when you’re talking specifically about M&A, I think there are 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 capacity even with a distribution of the proceeds. When you say divestitures that -- 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 remaining with the KML entity. But we’ll look at all of the alternatives and including strategic combination.

Let me get to switching gears to the Permian Highway. So on PHP, the base design calls for a 42-inch pipeline. You also noted the possibility for 48-inch line. We’ve seen some projects propose with a similar diameter with up to 5 Bcf day of capacity. Are there any physical limitations that would prevent that level of compression on PHP, or is it more a question on commercial support?

I don’t know how you get to 5 Bcf on a 48-inch, it’s 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's just the fourth quarter last year that we signed up a two 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 two things; one is the robust growth and 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 Houston market, power demand, petrochemical as well as LNG and 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 area. Is there any work that you’d have to do on the downstream side of this, thinking more so along 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 get that gas dished off to valuable markets.

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 here, so our Texas Intrastate system is not a FERC regulated asset, that’s important to know. And I think we are generally doing -- I'll turn it over to Tom to answer on the intrastate pipelines, generally doing negotiated rate transactions.

Negotiated rate transactions and really I think we’re seeing, both on EPNG, NGPL as well, opportunities to -- have very very attractive negotiated rate deals for at least the two to three year period. So some of these other projects, where projects come in to service and in some instances longer term than that, so lot of demand for capacity to get out of the Permian.

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

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

We’re continuing to expand on all three of those systems. We’ve been doing some external and we are looking at others as well.

I guess how much -- how big these deals, are they small or could that be notable that some -- it looks like there is some big constrains coming up. And I’m just wondering how much opportunity there?

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 new build 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 are actively building as well as 2.7 Bcf project that we've got in advance development.

It seems like you’ve been ahead of those pipelines coming online there could be big bottlenecks, I don’t know if it’s like 100 mcf or is bigger or smaller. Just trying to feel like how much we could see there, because there is 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 if you look at long-term within all these projections, they’re going to be subject to debate. But if you look at long-term projection, there is a long-term protection 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 de-bottlenecking 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 and the business that’s moving the stuff from place-to-place. And it’s also a good thing that we have, essentially with our assets, we lap the part of the market that's really growing in terms of demand on the Texas Gulf Coast and even Louisiana.

And then I guess just looking at the balance sheet, and if you are able to get $2 billion of cash move from KML to KMI what type of target leverage are you looking for? You said you could be on uplift for upgrade there. Would you look to buy back bonds or keep cash in the balance sheet for projects? And 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 is as particular instances to further de-lever, 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…

As opposed to buybacks or something else.

Do you have a 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, KML hasn’t said exactly what it’s going to do with the proceeds. You’ve heard today that Steve said that we don’t think it’s a good idea to set our cash in expectation of a hypothetical acquisition. So we’re waiting on KML’s decision. KMI has said, 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 5 times or better leverage metrics.

And obviously it 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 5 times?

It would be well below 5 times 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 an NPV neutral event for you guys, or any more color you can share there?

Not a lot more color than what we have in the press release. 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 substantial cash award to Gulf LNG.

Our next question comes from Jean Ann Salisbury with Bernstein. Your line is open.

Just a couple from me, the first one is I've had a number of clients with concerns about your Permian Highway Pipeline partners’ ability to fund their share of the project. Could this be a possible show stopper, or would Kinder Morgan be willing to take a larger share if it came to that assuming the customer contracts were there?

It's an attractive project to us and so we would take a larger share of that [indiscernible] an issue, we don't expect it to be an issue though.

And then now that your debt is below 5x and U.S. oil prices and production have recovered, it seems like there's more room than in the past to sell non-core 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? Are you pretty happy with your portfolio as is and perhaps even view the diversity as a benefit?

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 towards 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, mentioned Oklahoma G&P that's not necessarily divesture for a JV or other alternatives we'll look at there, so we'll continue to look at it.

So may be 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. Your line is open.

Just a couple of questions and some of them are re-asking some of the other questions that have been previously asked, but first just starting with the TMX proceeds. So you clearly outlined that you're going to pay down debt, that's the first priority right now. Given the fact that a chunky pay down of debt, but as you said you know, 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 in your analyst day this year, you had said I think it was $565 million was available to buy back shares. Would that be the approach that you would take between ’19 and beyond that if there's cash available after funding CapEx and dividends out of operating cash flow that you would then direct it towards that? Or would you still want to get meaningfully below the chunky pay down of debt that you're indicating right now?

I don't know what you mean by chunky pay down paying down debt is paying down debt, Shneur. 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 clear roadmap to where we’ll be in the future. But our thought on this is we’re de-levering, 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 dividend. 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.

And so maybe two follow-up questions, first one follow-up on the Permian infrastructure. You sounded like you have some de-bottlenecking opportunities, and it sounds like some compression here and there and so forth that can give a couple hundred [indiscernible] day of new capacity. But at the same time, the plan is to bring on cost [down] [ph] you expressed here, 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 am just trying to understand how you balance those types of items.

Yes, those are very -- they're very attractive returns, but we don't -- 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 in supply and demand that we’re seeing across our network what that does to our existing system. So even without expansion, [without] [ph] 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, and then aggregated for a downstream move. Now, those little bits of capacities are all valuable and we’re getting value for them. And so it’s small projects like you say that are often done at very attractive multiple. It's bigger projects like Gulf Coast Express that are done at also attractive returns, but clearly not the multiple you can get for some of the smaller capital projects. But it's also an uplift to the value of our existing network.

And just one follow-up on that, to the extent that it is a short-term opportunity, because those 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 the 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 from those projects, which I assume you would also have operating leverage once Gulf Coast Express and PHP come online. Is that the right way to characterize it?

Yes, I think that's fair.

And one final question, just a follow-up on the pruning of assets. When you 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 a longer-term basis, has anything changed as you’ve gone through this evolution over the last two to three years?

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 own the enhanced oil recovery fields. We also do for third party sales for 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 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 are happy to hold.

The next question comes from Tom Abrams with Morgan Stanley. Your line is open.

I just wanted to make sure I understood the Canadian thought process, because if the money stays at KML, it improves your balance sheet. If it’s the dividend to you it improves your balance sheet. The part of the uncertainty is if it’s used to make an acquisition then that that impacts your targeting or your debt level, if you will. And so without knowing what you're going to do with 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 concerns you have about well, if the cash is diverted into 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 and 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. 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. 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.

Couple of other questions real quick ones. First, any steel tariff issues slowing procurement, slowing timelines 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 and the 48 inch. And there is a distinction between those two 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 us at a predictable price and on time. And so it has an effect, it’s created uncertainty, there is 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.

And then I wanted to ask about this Jupiter crude project and they're advertising you as one of their benefits, because of connectivity to Corpus and Houston, as they had [head] [ph] down the 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.

And then the last question is on the terminalling in New York. Is that something that's going to linger for the next couple of quarters at least? I think that continue to run off, if you will, and you won't have -- am asking if you’ll have offsets to for instance new tankers coming into the fleet or better volume somewhere else…

We have the Base Line 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 and API inspection, leaves you 2.8 left. 2 million of that is in Staten Island, and [indiscernible] associated with a steel tax issue that was implemented a couple of years ago that they rescinded the ability to have a rebate on. And so that has created a hole in our ability to release the tank. We are 100% utilized in Houston. We're 100% utilized in Edmonton, Vancouver and in other locations. But we do have an issue at 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 or exceed [indiscernible].

The next question comes from Keith Stanley with Wolfe Research. Your line is open.

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

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.

Back to KMI, any material additions 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 find good opportunities and work on good -- and obviously, it does not include Permian, 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 in liquids terminals business.

And 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 pipes 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 of 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. Your line is open.

Steve, 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 increase net back to customers over the long-term? And then as you guys think about capacity commitments on that line, recognizing the intrastate 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 Intrastate business under the scenario like you said theoretically basis should be wider for longer?

So first of all, when we make the arrangements with our customers, they get downstream connectivity with that deal. Now, downstream connectivity is on our network. And so I think the right way to think about that Darren is we’ve got about 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 and the impact to 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 new build 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. Your line is open.

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

Yes, we have a lot of, I think $300 million worth of projects up in the Bakken that 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, and there is likely to be a need to have a residue outlet on the transmission site, which we are certainly trying to take a look at that as well. So a lot of growth, a lot of opportunity up there and we feel really good about our position.

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

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. Your line is open.

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

Yes, it looks like it's coming together in Q3. Now, as always, it comes with a caveat that sometimes we’re dependent upon -- the customer is 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.

And in terms of other shippers coming onto the line. Are they also chunky shippers like your anchors where they might be asking for participation, is that a possibility?

Potentially, there is some still -- there's a very big chunk 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 own and operating this project, as well as Gulf Coast Express but on the right terms, we would consider it as we did.

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, sounds like there would be an all or nothing kind of thing. Is that an accurate interpretation of some of the messaging?

All options are on the table.

But if it were -- or I guess maybe just asking it in 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 fits…

And there’s some transactions there as well…

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

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 with what we’re disclosing here, we should be poised for everything eligible for an upgrade but don’t want to put anything ahead of the agency. So we’ll be talking to them in the coming days.

And then I do just have one last one. On the FERC, you've made some comments there 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 that might need FERC review, or just -- also just on implementation of what they did in March?

So first on the projects, don’t see that as an issue, they’ll still have a quorum. And 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 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 is 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. Your line is open.

I just had a couple of questions on KMI, and I think I’d like the start with credit. I just want to understand what the pro forma company’s credit profile will be. It looks like you have 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 facility in place. As I said, the government [indiscernible] will go across -- clearly, we’ll have working capital needs. And so we’ll put in a facility in place after closing and obviously the press that are out [indiscernible] as well.

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, [or still not relevant] [ph] versus the advantages of simplifying the corporate structure?

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 John and his team can get the most out of. We’ve got a couple of expansion opportunities we’re working on. I mean, this very -- 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. Your line is open.

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

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

Just turning to guidance, understandably, you’re withdrawing it to sort all the time 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?

Robert, what I would say is there should be a meaningful change based on what we walk you through since the IPO with residual assets. But if you can appreciate, we're obviously divesting half of the Company the majority of employees, including a lot of the shared services that employees are going we've got a cost allocation methodology that’s going. So we're happy to reconstitute the expense structure and everything. But again, we wouldn't expect that there is a meaningful change in the overall earnings power of the assets, first thing.

And just a last question related to that, there was a reference and you’re withdrawing things like EBITDA and DCF guidance, but also the expected to clear 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 right-size the dividend just for what you got that’s remaining?

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

The next question comes from Christine Cho with Barclays. Your line is now open.

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

There is a number of resolutions from [indiscernible] to leasing it out to specific customer to shutting it down and we're evaluating all of those. It has a very small earnings impact overall, but it does have a meaningful impact on utilization.

And then what drove the one quarter delay in [indiscernible] and should we assume that all subsequent trains are delayed by the same timing?

First of all, there’s some context here. So train one, once there’s 10 trains total, train one, once it's in service attracts about 70% of the revenue. And so there is -- all I’m saying Christine is there is 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 multifactored. 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, but it works -- we definitely are experiencing one quarter delay. So we still expect to get this done. It's under budget. We’ve got contingency remaining. It's still going to be a very economic project for us and our partners. But we have had this one quarter delay.

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, in 2018, we have 87% of the Mid-Cush spread hedged.

And then the 13% is not?

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

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 for 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. Your line is open.

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

We’ll take that into consideration…

Yes, duly noted…

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

Our vessels don’t burn that type of fuel oil, it's all [indiscernible] and there is no impact on our business there.

The next question comes from Douglas Christopher with D. A. Davidson. Your line is open.

When we look at KMI and we see its recovery as a leader in the midstream and volumes in the profits. And you talked about your great attribute to the company being strategically positioned fee-based assets predictable cash flows. It seems like the CO2 business, 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? Thanks.

Part of that business is -- so 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 split 4 and 7 between source of transportation, which looks a little bit more like a midstream business, that’s why 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% to COR. 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 CO2. We've got the CO2. And then we’ve got the field and we’ve got the EOR expertise. So it's an opportunity that we 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 was 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're 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.