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 objection, you may disconnect at this time. I’d now like to turn the conference over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Thank you. You may begin.

Thank you, Sheila. Before we begin, as I always do I’d like to remind you that KMI’s earnings release today and this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934, 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 statements and use of non-GAAP financial measures set forth at the end of our earnings release, as well as review our latest filings with the SEC for important material assumptions, expectations and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. Let me begin by saying that over the last several quarters, I've started these calls with a review of our financial philosophy and strategy at Kinder Morgan. I look back and looked at what I've said over the last few quarters and the message has been very consistent. And it is this, we generate significant amounts of cash. And we'll use that cash to fund our expansion CapEx needs, pay our dividends, and to keep our balance sheet strong, and occasionally on an opportunistic basis to repurchase shares. We will use a disciplined approach to approving any new projects. And that's exactly what we're doing even in this challenging year of 2020, which I believe shows the resilience and strength of our collection of midstream assets. Now as we look beyond this year, we can't predict with any accuracy what the future will bring in terms of a return to normalcy for our economy and our lifestyle. But we are confident that KMI will continue to generate strong cash well in excess of our expansion CapEx needs and the funding…

All right, thank you, Rich. So I'll give you an overview of our business and then turn it over to our President Kim Dang to cover the outward and segment updates. Our CFO, David Michels will take you through the financials. And then we'll take three questions. Our financial principles remain the same, maintaining a strong balance sheet, or maintaining our capital discipline through our return criteria, a good track record of execution and by self-funding our investments and on that front, we evaluated all of our 2020 expansion capital projects and reduced CapEx by about $680 million from a 2020 budget for almost 30%. That was in response to the changing conditions in our markets. We still have over 1.7 billion of expansion capital in 2020 on good returning project investments. We're also maintaining cost discipline. We now stand at about $188 million of expense and sustaining capital cost savings for 2020, including deferrals about 118 million of that is permanent savings we believe. The result of this work on our capital budget and our costs is that our projected DCF less discretionary capital spend is actually improved, versus our plan by about $135 million to our 2020 plan and about $600 million, versus our 2019 actuals all that, notwithstanding the pandemic. We more than offset the degradation to our DCF forecast, with spending and capital investment cuts in 2020. Finally, we are returning value to shareholders with the 5% year-over-year dividend increase to $1.05 annualized providing an increased but well covered dividends. So strong balance sheet capital and cost discipline and returning value to our shareholders. You'll note that we omitted the reference to getting to $1.45 dividend that we projected back in 2017. omitting $1.25, is not backing away from further dividend increases, we remain committed to…

Okay. Thanks, Steve. Today, I'm going to go through a review of each of our business segments, as well as a high-level summary of the full year forecast. So first, starting with the natural gas segment, transport volumes were down about 2% or approximately 575,000 dekatherms per day versus the third quarter of 2019 that was driven primarily by lower LNG demand, competition from Canadian deliveries and lower Rockies production. These declines were partially offset by a full quarter of volumes on our GCX pipeline that went into service last year. Physical deliveries to LNG facilities off our pipelines were down about 700,000, dekatherms a day versus the third quarter of 2019. They were also down versus the second quarter of this year. However, we have seen a recovery in those volumes and current volumes are nearing pre-pandemic levels. Exports to Mexico were very strong in the quarter and they were up 500 a day when compared to the third quarter of 2019 and over 650 per day versus the second quarter of this year. Deliveries to power plants were up 5% driven by coal switching and warmer weather. Our gathering volumes were down about 13% in the quarter compared to the second quarter of 2019. For gathering volumes, I think the more informative comparison in the current environment is versus the second quarter of 2020. So compared to the second quarter volumes were down about 4%. KinderHawk, which serves the Haynesville was down due to lack of drilling and decline in existing wells, however, we're still expecting based on conversations with customers and a forward curve on natural gas prices to see new drilling in the Haynesville in 2021. The bright spot in the quarter was volumes on our Highland system and the Bakken, which were up approximately 30%…

Great. Thank you, Kim. Today we're declaring a dividend of $1.26, $1.25 per share, or dollar $1.05 annualized, which is flat with last quarter. For our quarterly performance, our revenues were down 295 million from the third quarter of 2019 driven in part by lower natural gas prices in Q3 of this year versus Q3 of last year. And those lower natural gas prices also drove a decline and associated cost of sales of $107 million, which partially offset the lower revenues. Net income attributable to KMI was 455 million for the quarter 10% down from the third quarter of 2019, our adjusted earnings is a bit higher at 485 million down 5% from the third quarter of 2019. Adjusted earnings per share was $1.21 for the quarter down $0.01 from the prior period. Moving on to DCF performance for the third quarter. The natural gas segment was down $8 million with lower contributions driven by our sale of our Cochin pipeline, along with lower volumes on our South Texas and KinderHawk gathering and processing systems partially offset by contributions from Elba liquefaction and Gulf Coast Express projects coming online. Our product segment was down 67 million driven by lower refined products volumes as well as lower crude and condensate contributions mainly due to demand impacts from the pandemic as well as lower oil prices. Our terminal segment was down 49 million, driven mostly by the sale of KML and the terminals associated with that business as well as lower refined products, coal, steel and pet coke volumes. Our CO2 segment was up $5 million due to lower operating costs and improved year-over-year realized pricing given improved Midland Cushing hedges more than offsetting the lower CO2 demand and lower produced crude oil in that segment. The G&A and corporate charges…

Okay. Thanks, David. So Sheila, we'll open it up to questions. And I'll remind you, as we've done in the past that as a courtesy to all callers, we're going to ask that you limit your questions to one question per person with one follow-up. However, if you do have additional unanswered questions, get back in the queue and we will come back around to you. Okay. Sheila?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jeremy Tonet with JPMorgan. Your line is open.

Maybe just starting off with a high-level question here on the pace of recovery, it's obviously difficult to tell here but just wondering what your thoughts are. If you look at the G&P segment, I'm wondering what you could tell us as far as what type of activity you're seeing in the quarter, and how you think that might recover over the next couple of quarters? And a similar question on the product demand side? What do you think now -- when do you think it's possible to get towards kind of pre-COVID levels just trying to get a better feel for how this could unfold over the next couple of quarters here?

Okay, yes, fair enough. I mean, broadly, as you heard from the numbers that Kim went through, we're continuing to see month-over-month improvements on the refined products side of things, things bumped back up big in the second quarter and in the third quarter, it's been more gradual, but we're still seeing month-over-month improvements but it's gradual. And I think, we don't have any special insight into how quickly people will return to driving or certainly starting to diesel volumes has remained fairly strong. Jet is I think most people would say, and I think we would say that jet is likely to lag. But its impact on us is relatively smaller than what its volume impact is. So about 12% of what we handle in our refined products business is jet, but it only comes down to about 8% of the EBITDA for those segments. And then, for KMI overall, it's about 12% of refined products, 3.5% of the combined refined products and terminal segments on EBITDA contribution. So 1% for KMI overall that's the whole of object volume. So 12% of the total volumes, but only 8% of the EBITDA, okay? On G&P, so gradual recovery there. On G&P, as Kim said, when we look at the change versus last quarter, it's a much smaller change than what it was on a year-over-year basis. And there I mean, I think the recovery is going to be, we saw a big comeback in the Bakken, for example, I think the Eagle Ford will probably continue to lag. The Haynesville is also lagging but we expect that's going to start turning around because we do need to produce natural gas in the United States. And if we're not going to produce it, to meet demand, if we're not going to produce it and associated gas plays, it's going to come from the dry gas plays and the Haynesville is well positioned for that and our assets are well positioned on the dry gas plays from an interstate standpoint, on TGP for the Marcellus and Utica and from a gathering standpoint for the Haynesville and very capital efficient increases in production that we can achieve there. So look, it's a bit of a mixed bag across the G&P landscape but that's directionally how we have sized it up.

That's very helpful. Thanks. And maybe just turning to California and energy transition, as you guys talked about before. In California, we see the internal combustion engine phase out plans and see a greater penetration from EV and biodiesel. And just, putting all together thinking about these refineries potentially close in there. How does this impact KMI or more importantly, how does KMI, I guess respond to this going forward?

Yes. So there are pluses and minuses on, I'll start with the plus side. As refineries convert to generate more renewable diesel, we can handle renewable diesel in our pipelines, we can handle it in our storage tanks. We think there may be opportunities for us to develop in our products pipeline segments and additional facilities to handle increases in renewable diesel that come out of the developments in California. In California it is heavily subsidized. And so it will make sense for people to make those investments and we're looking for ways that we can participate. So I mean, I think just broadly, there are some things that we have to pay attention to in terms of being able to track renewable content, which becomes more challenging once we get over the 5% level but we can adapt and adjust to that. But I think the easy way to think about it is renewable diesel looks like regular diesel when it's in our pipes and tanks. On the negative side certainly we've seen the announcement about the intent to phase out really eliminate internal combustion engine sales in new cars in California, a couple points that I would make that kind of mitigate that. One is not all of our volumes on our SFPP system serve California market. Some of it moves to serve Arizona as well as serving Nevada, both in the Las Vegas and Reno market. And the other thing is, it takes a while and we'll talk about between now and 2035. It takes about 10 to 12 years to roll over the vehicle fleet, et cetera. So there are a number of things that really mitigate that impact for us on to the fine product side.

Thank you. Our next question comes from Ujjwal Pradhan with Bank of America. Your line is open.

Firstly on M&A, Steve, we know we have seen a wave of upstream M&A recently, and midstream sector appears to be primed for it as well, with recent headlines around certain G&P companies exploring sell. If a deal were to satisfy your criteria for leverage in DCF accretion, which area of business would KMI prioritize pursuing M&A again?

I'll give you, a really key point there, which is it has to meet the criteria that includes meeting balance sheet criteria, as well as being a business that I think generally we're already in and that we're confident that we can operate that we can bring some additional synergies to, we can always bring cost synergies, we believe we are an efficient operator, but we have to find other things that we can do. Look, I think there are two parts of this. I mean, certainly the activity that's going on in E&P right now, I mean, I think that's a good thing for the sector. And I think, indirectly, therefore, good thing for midstream in the sense that you're getting stronger more well capitalized players with plans to continue to develop I think and they're doing it in a way that doesn't, harm the entity going forward. I think too big of a premium, for example, et cetera. In midstream, we continue to keep our eye on relative valuations with all those criteria that I mentioned. And we're going to be very conservative and very disciplined about our participation there. The other thing I think we'll begin to see more of but it's kind of -- it's on the sidelines right now is asset packages coming on the market. There's a lot of those evaluations, I think were put on hold back in March and April and do think that we'll start to see a little bit more activity there. And we're in that information flow and if we find something that's attractive, as we did on a fairly small scale at the end of last year, we'll look to act on those. So not yet, really seeing it in midstream. But we think there may be some asset sales that come online later in the process here. Kevin, anything that you want to add to that?

No. I think you covered it all very well, Steve.

Got it. Thanks for that Steve. And second question on additional thoughts on shareholder return here? How are you weighing buyback versus distribution group? And the question here is, given that distributions have not been rewarded recently, would you say that buybacks may be a better option than your current intention to raise distributions to the $1.25 per share level?

Yes. I think both Rich and I covered it at the beginning. We're looking at what the best way is to return excess cash to shareholders, maintain a strong balance sheet, invest in projects and good capital -- and good returns that are well above our cost of capital, et cetera. And you're right, I mean in the current environment with a security that's yielding over 8%, certainly, that's the case. However, we're going to be thoughtful about this and our board will be thoughtful about it, when they deliberate on it and make the decision, just because dividends are out of favor now, doesn't mean we shouldn't be paying them and shouldn't be increasing. And we think that that's a very valuable and reliable and steady way to return excess cash to our shareholders. And we believe that the market from time to time appreciate that from time to time, it doesn't. And I don't think we can make our decisions based on what is currently prioritized. But clearly, by saying what we said in the release, we're giving ourselves flexibility, which I think is as I said, it's a very wise thing for us to do in a time like this.

Thank you. Next we will hear from Colton Bean with Tudor, Pickering, Holt & Company. Your line is open.

Appreciate the prepared remarks around energy transition and potential opportunities for the KMI asset base. Coming in from a slightly different angle, can you speak to your philosophy on capital structure in the context of transition?

Capital structure and in what sense?

Mostly thinking here in terms of the balance sheet and whether leverage the appropriate metric, is there some consideration of ratable [indiscernible]? Really just trying to understand, if there is, whether it's 2030 or 2060, if there is, some sort of timeline out there, how you evaluate that when you look at the balance sheet?

Yes. No, I understand. Look, we still believe and Anthony can weigh in on this as well. But we still believe that the rating agencies believe that we are appropriately rated at BBB flat around 4.5x, when you look at our whole business mix. I'll make a little bit of a broader point here, I'm not the expert that you all are in other sectors. But in my casual observation of it, it's funny to me that in our sector, when we talk in terms of like, 2040, 2050, 2060, there aren't many businesses out there right now that can really be thinking in terms of that length of time for them to be in business and doing things that they're doing today. And so, I think there's no, there's no pressure there to do something different on a 4.5x when you think about that runway and when you think about the quality of our assets and the diversity of our cash flows and the length of our contract terms, the increasing irreplaceability of our assets, if you will, I mean, the harder it is to build new infrastructure, the flipside of that is that the existing infrastructure, which we haven't had a lot of becomes more valuable, all things being equal. And so I guess the short answer is no.

Appreciate that. And then on the Rockies pipeline network, you mentioned some producer optimism in the Haynesville just given the moving strip here. Could you characterize recent conversations around the Rockies region, and whether that your thoughts on recontracting potential have shifted at all?

I'll ask Tom Martin to speak to that. Tom?

Yes. I mean, I think clearly, we're seeing less development activity in the Rockies than we were seeing probably a year ago. And so that certainly will have an impact on have excess capacity in that market. But I mean, I think, we have valued that, I think in the past appropriately and so I don't see that as a material change to us overall. Clearly, things that we've known about that are on the big contracting cliff, such as Ruby, things of that nature, we've considered that in our long-term plan and I don't see that really being impacted by the current change.

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

So we're expected to have too much gas takeaway out of the Permian next year, when PHP and Whistler start. Can you remind us how much of your existing gas takeaway there is undertake or pay and if we should expect significant cannibalization when PHP starts next year?

The vast majority of it is under reservation fee-based contracts. So that's really EPMG and NGPL and the hill country pipeline, which is a smaller intrastate pipeline than the two new ones that we're building. So it's mostly preservation fee or take a pay base. I mean, I think that the one impact that we'll see, or that we started to see is that with less constraints, there's less of the short-term business that we were doing and getting nice rates for. So it does have some impact not to the base as much as to some of the upside opportunities that we have been seeing so it'll be some impact at the margin there. Tom, anything else you want to add to that?

No. You covered it, Steve. Thank you.

Thanks. And then just one more about energy transition. So in a scenario where 2035 utility of gas demand drops significantly but to your point earlier, they still need very high availability of gas to cover a peak daily demand. How would you see contract structures with utilities and gas pipelines changing if at all? Do you think they'll have to kind of keep contracting their maximum daily quantities or pay you the same or pay less if you could just talk a little bit about how contract you think would change in that environment?

Yes. We think that within the existing tariff structures that we have that largely we can accommodate that environment. And, for example, I will Tom to add any color here that he wants to. For example, if you need the power, or if you need the gas deliverability for three hours every day, but you don't need it for 24 hours a day, well, it doesn't have to be sold, that way, we can sell it on a long-term basis at max rate or in a negotiated rate. And people have, they pay to have the capacity available when they need to call on it, that now that might mean that utilization goes down. But as somebody who contracts for and charges for our services based on the reservation of the capacity itself, then we think that we can't -- we have successfully worked through that and gotten renewals on good terms with our customers, including in California, and we've sold capacity to merchants, et cetera, who are holding it on the same idea. Now, they can capture the upside on a spike, for example but we can parlay it into term contracting. So we are looking at other new service structures that we should be considering that would be more attuned to variable demand from power generators. And we may have some ideas there. And we may make some proposals there, including on the storage front, but I think we can manage within the structure we have.

I think that's right, Steve. I mean, I do, we are starting to see some variable type services being contracted out west. But the long and short of it is we're getting really good value on our capacity, whether it's sold on a 24-hour basis and used less or -- and/or selling variable services to meet that that growing need really have capacity to backstop renewables.

Got it. So you do have examples where the next [indiscernible] quantity isn’t much higher than the utilization but utilities can still pay it through that contract structure?

Yes. We do have some of those services that we sell out west.

Thank you. Our next question will come from Shneur Gershuni with UBS. Your line is open.

Just wanted to come back to one of the earlier questions, unfortunate to use the question on this, but just with respect to the commentary around buybacks and the dividend, maybe I'm paraphrasing here a little bit here. But you added buybacks efficiently to your press release, which I didn't really see last time you've talked about the increased flexibility, is the right way for us to think about this on a go forward basis that there's you definitely are focused on flexibility. You see where the yield is today? And is it fair to conclude that you're basically looking at an option where you maybe increase the dividend at a smaller rate, but that you look to pair return of capital needs to shareholders via using buybacks? And so it gets sort of be a twin announcement in January, rather than specifically around the dividend? Is that the right way for us to be thinking about that as one of the options you're considering?

Two things, one is that again, we'll complete our budget process and talk to the Board about how to look at dividend policy for 2021. But yes, as I said, we are by talking about buybacks, and of course, we've been talking about buybacks for a while we've used about 575 board authorized 2 billion of capacity, we did a little bit earlier this year, for example. So that's not a new message. I think what's new is that we are emphasizing the flexibility by not specifically talking about $1.25 in a timeframe on $1.25. So the answer is yes on retaining flexibility and that that is what we're trying to get across today.

Perfect. And maybe as a follow up question, I realize it’s a little early to be talking about guidance given your still in your budgeting process. But on the last call, there were some discussion around CapEx potentially being as low as a billion dollars for growth CapEx. You also made further emphasis on reducing costs and that we believe can sort of address that in the prepared remarks as well too. How have things evolved in your thinking since the second quarter? Do you see deeper cuts on both on the horizon? Just any color that you can provide and how you're thinking directionally on both operating costs from where we sit today, as well as the discussion on CapEx from the last call where the billion dollars came up?

Yes. So, we are in the middle of our process right now. But I think one thing that has emerged fairly clearly, and I don't think it's all that surprising, but we talked about being at the low end of the range, I'm sorry, below the historical range of 2 billion to 3 billion and responded, yes, when you ask, maybe as little as a billion, I think that's shaping up to be pretty good assumption for 2021. Because we can kind of see that, we can sort of see the projects late from here. And so that kind of low $1 billion range is, looks reasonable. Everything else that you mentioned is really getting worked through right now. I mentioned the cost savings evaluation that we've done. And in parallel, we've been working on our budget and really are getting in the thick of that as we review our business unit budgets in the coming weeks here. And so all that is going to have to get folded together and it's a little more complicated than it's been in past years as you might expect, because of that, but still expect we're going to be able to give you a guidance, it might not be on the exact anniversary of when we did it last year, but we still think we can pull those together and give you some indication.

Perfect. I really appreciate the color that you provided. And I'll jump back in the queue to ask about a minute renewable natural gas question.

Thank you. Our next question will come from Spiro Dounis this with Credit Suisse. Your line is open.

Steve, curious, did you go through the budget process here and go through all the assets with a fine-tooth comb again, getting out of the Analyst Day? Has the downturn changed the way you think about some of your assets and whether or not they're still core of the business? Just curious if anything sort of been permanently shifted lower and thinking about certain assets, maybe still carrying our way from a free cash flow perspective? Does that present any disposition candidates now that maybe you didn't think about earlier in the year?

You get to kind of hear a repeat of the way we've talked about this before, but I think we've done -- we did our obviously our Canadian divestitures for a variety of reasons, you saw that. Most of what we've been doing, since then has been relatively small and kind of pruning to align things, John Schlosser and his team have done a great job over the years of sort of migrating us more toward refined products hubs and a little bit away from these kind of islands and both terminal assets, we saw some very, very good bulk terminal assets. But I think we've done a good job of kind of pruning. And then, I'll say the other thing that we always say, which is, we are a shareholder driven company, and if values appear and they're worthwhile and our shareholders are going to be better off on the other side of the transaction than they were on the way in, then we will consider it. We are a shareholder driven company. And so even if it's a business that relies get the value is really strong and robust. We'll consider those things, too.

Okay, fair enough and we'll get pretty consistent there. If I could just get you to apply them on natural gas price [indiscernible] '21. And that's not a major driver for you but just giving you a position on both the supply side and demand side seems like you'd have a pretty unique view here. And I guess, as we enter next year, obviously, there's supply constraints and the associated gas basins. Imagine on demand side, we're not going to have the same sort of LNG cancellations that we saw this year and so that's sort of moving the other direction. Just given where the price outlook is now above three -- could that actually get tighter from here? Are you seeing enough, I guess resiliency in the gas basins, maybe a recovery [indiscernible] to sort of offset that on the supply side?

So supply is drifting down because of the associated gas plays and demand is going up. And I'm not a commodities trader, but that looks -- it's going to drive prices higher. And of course, that's what we're beginning to see. I think the other phenomenon, though that has to be factored in there is that, I don't -- I think that there is a bit of a lag in reflex time or response time here in terms of making the switch from associated gas to the dry gas plays and the people are getting their plans together. And we've had good conversations with customers, et cetera. But I think you're probably right, we are the swing supplier from the global LNG standpoint, but I think earlier this year was unusual in terms of the level of cancellations. I think LNG has been going back up, I think, Tom, it's like 7.8 BCF a day now, which is kind of in line with where it was pre-COVID. And we've got some additional facilities that are coming on, that are going to drive demand further, something's got to come in and fill that in. And it seems like that's lagging a little bit. Now, a lot has been reflected in the price already. But it seems like there could be some still some volatility and maybe some continued upward pressure, Tom anything else you want to point to that you observe?

No. I think you covered it all. I mean, it is a need for dry gas development. And that doesn't happen overnight. And I think the demand signals for 2021 look good. And so, we could see things fairly tight, I think at least the first half of ’21 probably drawing down storage levels lower certainly than we have in recent times to help fill some of that. And then, we really need to see response from the producer community for the second half of ‘21 and beyond.

It's doesn’t directly affect us as it does the producer segment. But we do benefit from some volatility and people's need to have storage and full on storage or we'll get some benefit out of that I think derivatively.

Thank you. Our next question will come from Tristan Richardson with Truist Securities. Your line is open.

Just a quick one, follow-up on the whole energy transition topic. You mentioned in your prepared remarks that you guys do and have evaluated more kind of renewable oriented projects. Can you talk about return hurdles, or projects that could conceivably make sense for KMI competitive with traditional midstream projects or do the acceptable return metrics look different just because this is a different opportunity set with a different growth profile?

Yes. So the returns are lower and lower than what we would see in midstream investments. And the argument is that there's so much capital available for those opportunities that the cost of capital is lower and ultimately reflected to the equity cost of capital for companies that are directly in that business. I don't see us gambling on an uplift in our overall equity value. Because we start to make some investments in solar panels or windmills. I think we're going to, as I said continue to be very disciplined. We've got a lot to work with in terms of what Tom and his team can do to complement renewable generation as I mentioned, marketing, marketing, the fact that we are a very low emission -- methane emission source of supply and transportation service. So things like that, it don't require us to compromise on returns for our shareholders, but still, nevertheless, allow us to participate. And I think participate in a meaningful way. The other things are, Jack and his team, as I mentioned, they are looking hard at the renewable diesel opportunities. And I think we can look, we can see returns in those businesses that are nice and very consistent with and some cases may be at high-end as some of the returns that we would get in our midstream business. John Schlosser is looking at the same thing in his business, his refined product terminal business. But I think we're looking to participate in a way that that doesn't compromise on our return criteria.

Very helpful. And then one last one on the buyback topic and the word flexibilities been used a lot this afternoon. And seems like that's where the emphasis is. I think there's been some prescription out there in a lower growth environment that a buyback program should be programmatic. I think that would actually probably take away from that flexibility. Is that a fair way to think about your opinion on a programmatic type of buyback plan?

Our view really hasn't changed on that. Opportunistic is the is the operative term. And that's the way we've administered the program that's already in that program, but the authorization that the Board has already put in place and we would expect that to be to continue that approach be opportunistic in our purchases.

Thank you. Our next question comes from Pearce Hammond with Simmons Energy. Your line is open.

Steve, how should we think about 2021 adjusted EBITDA? What do you see is the high level puts and takes around next year's outlook for Kinder Morgan?

I don't have one for you until we finished the budget process. Look, this is something that I think it happens every call, that's the third quarter call, which is we report on the quarter, and people are naturally turning their attention to the year ahead. And so are we, but we're not done yet. And so, I think we'll save that until we until we finish that work. And then we'll let people know where we think we're coming out.

Okay. I understand. Thank you, Steve. And then, following up on an earlier question from one of the analysts about E&P M&A, and kind of the big wave that we’ve seen? Do you think that that big wave ultimately places pressure on the midstream sector to consolidate or does that not play a role?

I don't think it really plays a role. I think that it will proceed on its own course. People have been pointing out really for seven or eight years now that there are probably too many midstream energy companies to actually serve the market need and therefore there should be some consolidation. And but it really hasn't happened in a material way other than the kind of internal consolidation, if you will, animal feed and GT is combining those sorts of things. But there's still a rationale for it is what I'd say. And I point to all the factors I talked about an answer, the earlier question is the things that need to come together in order for us, it can make sense to us to act on particularly in these times. And particularly in these times. point is that there's still a lot of uncertainty out there. I mean, we're not on the other side of the downturn to U.S. energy not on the other side of the virus, certainly yet. And so I think there remains a fair degree of uncertainty out there.

Thank you. Next, we will hear from Michael Lapides with Goldman Sachs. Your line is open.

Real easy one here, there's a lot of smaller E&Ps thing and a few larger ones that are in distress, financial distress. Can you talk about kind of your broad exposure to them? And how much in the way of either contract rejection risk or something contract renegotiation risk presents itself when you're going through the planning process and thinking about 2021 and beyond?

Okay. Yes. Few things on that, for us that we believe, we provide essential services to these producers. And so generally, we have some insulation from contract rejection to the extent that they -- and that'll vary from basin to basin, okay, it's a, but if they're going to continue to produce, they need to continue to get their product to market and where they're providing important services for their ability to do that. And so that always enters into the rejection affirmation discussions. And, we've got, I'd say, balanced, if you look now at where we are probably less than 1% on a revenue basis exposed in 2020 to B- and below, still running like 75% of our revenues. Revenues from customers that are above, I think it's 5 million is the threshold, it might be 10. But anyway, our customers 75% are investment grade have provided substantial credit support. We have experienced about $40 million credit hit from producer bankruptcies for 2020. And again, I think we have a number of things that we can do that help insulate us, including calling for adequate credit support, including having assets that provide services that are needed, whether it's by the company or the debtor in possession.

Thank you. Our next question will come from Elvira Scotto with RBC Capital Markets. Your line is open.

I have a couple of follow ups. On the upstream M&A, I know you mentioned that in a way as more upstream merge it's a benefit having larger, better capitalized customers? What are your thoughts on? Do you think that this also would benefit the larger more integrated midstream companies that can provide more services or have more bigger footprint? Do you think that that actually works to your benefit?

The upstream consolidation working to the benefit of the integrated?

Yes. The larger midstream companies with larger assets?

Yes. I think I mentioned this earlier, but what I think it is good overall, not just for that sector, but for ours as well, that we're getting producer combinations out there that are producing healthy companies that intend to continue to produce oil and natural gas and are coming out in good shape from those transactions, or the company emerged from the other side of those transactions in good shape. And I think that's always helpful. Now, I think it's a question of how quickly do they form the new drilling plans and all of that sort of thing, but I think it's a healthy thing overall, for the energy business and at least derivatively for our chapter.

Got it. Okay. And then just one follow up on the energy transition question. You mentioned the ability to use your existing assets. And you talked about hydrogen and the ability to use your existing gas pipeline. So, natural gas pipelines can transport I think, anywhere from 5% to 15% hydrogen blend without really much modification, what would it be required to transport more hydrogen?

Okay. Kim, do you want to take a shot at that one?

Sure. I think the issue with transporting more hydrogen Elvira is embrittlement pipe, so it can cause cracking in certain types of steel. And then, on the compressors the issue is certain compressors, they can handle generally compressors within the last -- that are manufactured within the last 20 years, roughly, can generally handle hydrogen blends that are 10% or less. Compressors that are older than that may require some upgrades even to handle the 0% to 10%. But again, just like on the pipeline embrittlement, the compressor stations handle -- they may not be able to handle -- current compressor stations probably cannot handle greater blends than the 10% without some modification.

The only thing I'd add to that Elvira is that we have to look at, or think about the downstream end users as well, can the power plants -- which power plants can take what levels of hydrogen -- the industrial uses, et cetera, you start to challenge the downstream end users as well.

Thank you. And our next question comes from Shneur Gershuni with UBS. Your line is open.

Just a follow-up question here. In the early part of the call with energy transition questions were a lot about the challenges, Elvira asked a great question on the hydrogen side. I was wondering about something that I think is more closer to home right now or more in the realm of our predictable timeframe, specifically on renewable natural gas, wondering if you can talk about whether it's something you already participating in and something where you see a growth opportunity right now and being able to utilize your existing footprint to take advantage of it.

Kim go ahead.

Okay, sure. Renewable natural gas right now is a relatively small market, it's probably about 100 million cubic feet a day. And the potential issues are that typically the supply forces which are landfills, dairy farms, wastewater treatment plants, those types of things have -- you can only get a small supply from those sources. And then, it's also very expensive so, the cost estimates I've seen on it are $15 to $30 for a dekatherm. So, those are the issues that would have to be overcome. But it is certainly something that we're looking at and that can be shipped on our pipelines.

And we are transporting a little bit today to your question, we are doing it today, it's very small. To give you might also talk about, on the other hand, the size, and how we define it for responsible natural gas.

Yes. On responsible natural gas, right now, that's in 2019, that supply was probably 11 BCF a day. So roughly 11% of the of the U.S. supply. And the way we think about it is, that's gas that is produced process transported with a commitment to reduce methane emissions to less than 1% by 2025. And so, we're part of a group, obviously, that has made that commitment. And the less than 1% midstream has an allocation of that less than 1% in the midstream allocation is 0.31. And we are well, well below that 0.31% and have been for a couple of years. And so we have had some customers talk to us about responsible natural gas. That it is -- these customers are marketing gas international customers. And so it has been important to them and important to their customers. And so I think there is no, we haven't seen a large acceptance of responsibly sourced gas. But we've had more recent conversations on this and it seems like it could be gaining importance.

Thank you. Our next question will come from Ujjwal Pradhan with Bank of America. Your line is open.

Thanks for taking my call up here, again. Just a quick one on Permian highway, it appears the pipeline's progress based on the completion level. It could be placed earlier into service next year. So if you're able to do so, in early Jan, do the contracts kick right away?

They kick in after we have done our commissioning work, which is a gradual and somewhat unpredictable process. I mean, it's a big pipe, we got a lot of compressor stations on it. We got to make sure everything works, et cetera. But we would expect to be in service and have those contracts go into effect as we said in early 2021.

Thank you. And we're showing no further questions at this time.

All right. Thank you very much. We appreciate your attendance.

Thanks all.

Thank you. That does conclude today's conference. Thank you again for your participation. You may disconnect at this time.