KMI
#I will give you a few updates on our performance and our key projects
First, we had a very good first quarter, with DCF per share at $0.54, and that's better than our beginning of the year guidance
Right now, we are seeing that and calling that as timing, so we are still forecasting to be on plan for the full year
But overall, strong performance for the quarter
On our Trans Mountain project, we have made progress on the project itself, and also on our effort to either joint venture the project with a partner or to include it in an IPO
On the project, we reached a really significant milestone
We increased our cost estimate, and that increase put us above the contractual cap
So cap was C$6.8 billion and our revised estimate is C$7.42 billion, and that, being above the cap, gave our shippers the right to turn capacity back to us
At the investor conference in January, we expressed our confidence that the market still had a very strong need for the project
And in fact, when all was said and done, all 708,000 barrels remained under long term contract
But now, have the increased tolls, and those increased tolls include our return on the additional capital that we will spend
We ended up with only 3% of the barrels turned back, and those were taken up in an open season over the course of a week or a week and a half
The contracts are 15, but primarily 20 year terms ---+ predominantly 20 year terms
Now this is a remarkable development, when you consider that these contracts were signed five years ago, and at $90 a barrel oil environment, and when the Canadian and the U.S
dollars were at parity
A lot has changed since then, including the circumstances of many of the producers in the oilsands, as well as the project costs itself
Our shippers and our commercial team worked very hard and fast to place the barrels with new customers, and existing customers who wanted more
As those who wanted less looked for places to assign our capacity
So message here is that even at the higher cost the demand for the project remained strong, and that's huge
We have essentially reconfirmed the value and need for the project, with a 2017 line-up of shipper needs, and based on 2017 market conditions
We also received during the quarter, our environmental approval from British Columbia, and we now have written agreements on the satisfaction of the B
five conditions, which were put forward for heavy oil pipelines crossing the province
So good regulatory development, and an extremely good commercial development as well
So that's on the project
On the JV, our IPO front, we have advanced on both tracks simultaneously, which is what we told you we would do in January
We believe this approach provides the best opportunity for us to secure acceptable financing terms for the project
Our key considerations here are value and control of project governance
Both of these processes are well advanced and we expect to update you by the end of the quarter on the resolution
Recall that for our plan, we assume the JV partner picking up 50% of the capital, but we did not include anything for our promote payment, which we would expect to get, and coming up with our target 5.4 debt-to-EBITDA metric
So in other words, we could do better on that target, to the extent we get to promote that we expect to get
I know everyone is interested in what the value is going to be, but we have avoided putting a marker out there for the sake of maintaining a strong negotiation position, but I will say this, this is an attractive return project, and is consistent with the 6.7X EBITDA multiple average that we have for the backlog as a whole
As we announced earlier, we completed our Elba JV transaction in the first quarter, and it was at the value that we put in the plan for 2017, and that included value in excess of our capital spend, recognizing the value that we created in originating the project
On the backlog, I will be brief, this quarter it stands at $11.7 billion, $300 million lower than last quarter
As usual, there are multiple moving parts, small project additions and removables and some cost changes, but the main development is that we placed into service our <UNK> Morgan export terminal, a liquids terminal dock and cross channel line project for one of our refinery customers on the ship channel, the Houston ship channel
We expect to update the backlog for the Trans Mountain outcome next quarter, so the project cost will now be approximately $5.7 billion, and the ownership level is of course, expected to change
One more project update before moving to a few commercial highlights
On our Utopia pipeline project, our project team has done an excellent job of acquiring right of way, and finding routing alternatives where necessary in the wake of an adverse court decision last year on eminent domain in one of the Ohio circuit courts
We are pleased with our progress, and we ---+ again we began the tree felling process in the first quarter
This joint venture project is under a long term contract and is expected to be in service in January of next year
Now a few commercial market updates, starting with the gas segment
Experienced slightly increased transmission volumes year-over-year, but gathering volumes were down
I will start with gathering; we are generally seeing a leveling off of volumes in our key basins during the first quarter, but the comparison to first quarter last year reflects the declines that took place throughout 2016. Generally, our volumes are in line with what is observed in the basins in which we operate, although we are running a little bit ahead in our Bakken's gas assets, with one exception, and that's the Haynesville, where we are down on our <UNK>Hawk asset, where the basin is flat to slightly higher
That's a function of the fact that our primary customer was not active in 2016. That's beginning to change, and we have added a new customer, that's actively developing its acreage, so we expect some improvement there
Recall, that our gas segment is 55% of our segment
Earnings before DD&A and gathering, processing is only 18% of that number
On the transmission volumes, we are up 1% year-over-year
The winter was weak, it was weak last year too, but we had a cold March in 2016. Power demand was down year-over-year
What I have read predicts that gas will still exceed coal's share of the power market again this year, but some gas to coal switching did occur on our assets in the first quarter
Also we saw higher renewable, including California hydropower contributing to the year-over-year decline
Overcoming this though, were exports to Mexico, which were up 16% year-over-year on our systems and now averaging 2.8 BCF a day ---+ averaging 2.8 BCF a day for the first quarter
Recall, that the vast majority of our margin here is secured by reservation fees, which are not affected by usage, but the volume information helps give a view on long term value for the capacity
I failed to mention also that LNG exports were up on our system year-over-year by half a BCF a day
We signed up an additional 400 a day of long term firm transportation commitments in the quarter
A 100 of that was existing but previously unsold capacity that brings our total in the last three and a quarter years to 8.4 BCF of new sign up of which 2.2 BCF is existing previously unsold capacity
We recently announced two developments related to the Permian
First, we announced a non-binding open season for a 1.7 BCF newbuild pipeline from the WAHA hub in West Texas to Agua Dulce in South Texas, our Gulf Coast express project
Last week, DCP announced its potential participation in that project as a partner and a shipper, and we are working with them over the next 90 days or so, to try to finalize that arrangement
DCP's assets in the Permian would provide good upstream connectivity and our Texas intrastate network would provide excellent downstream connectivity to Mexico, LNG at Corpus Christi and utility in industrial markets along the Texas Gulf Coast
Gas production is growing in the Permian and increasingly, East Texas is becoming a premium market
We think the project makes a good deal of sense, but we are in the early days and we have not put it in the backlog
The second development related to the Permian is, we have a binding open season on our EPNG system for capacity to the WAHA
The open season package includes 150 a day of existing capacity, but it also reflects our ability to expand the system, by as much as 900 days more, to meet incremental demand
The expansions would be relatively inexpensive, and would again, demonstrate the value of having existing infrastructure that we can build off of at attractive returns
This project with a fee takeaway capacity at WAHA, including the potential Gulf Coast express pipeline in our Midstream business, and we continue to work both of those opportunities over the coming weeks
The overall summary on gas is that we continue to expect long term benefit in the sector from increased LNG, Mexico exports, power and industrial demand, which should drive the demand from transportation storage infrastructure for the long term
Shifting to our products segment, refined products volumes are up 1% year-over-year, even though we experienced some weakness in Southeast U.S
Crude and condensate transportation volumes are also up 1% year-over-year, notwithstanding declines year-over-year in the Bakken and Eagle Ford basins
KMCC in particular continues to show the benefit of its superior connectivity, both on the supply end and the Eagle Ford, as well as on the [indiscernible] in the Greater Houston area, and holding up very well in the face of declines experienced in the Eagle Ford as a whole on a year-over-year basis
In our terminals business, our liquids terminals utilization climbed to over 95%, as we continue to benefit from the strong positions we have built in several liquid hub locations
And this team has been gradually been migrating it's business increasingly to the liquids part of the business
We are now at 80% of our segment earnings before DD&A coming from the liquids part of the business, and increasingly, our development activity is in the hub positions that we have built in Houston, Edmonton, New York and Chicago over the years
We have kept our Jones Act vessels under charter on renewals that we have experienced, on [indiscernible] renewals
We had the discount to do that, but we expect to be slightly ahead of our plan on this business, and we currently have all of our vessels under charter
We continue to make good progress in our base line terminal expansion at our Edmonton hub, and as I mentioned, we put our <UNK> Morgan export terminal project in service on the Houston ship channel
In the CO2 business, we came in slightly ahead of plan for the quarter, with pricing offsetting lower crude production volumes
Also of notice, that we achieved record CO2 volumes during the first quarter
Our demand was up, but so were our third parties'
They had a good strong demand for CO2 off of our system
So again, overall, a strong quarter, with strong financial performance, continued progress on our project execution and on our joint venture plans for our key projects
And with that, I will turn it over to Kim
Yeah
So I will start with the open season
It's closing shortly again, it's non-binding
The DCP discussion started early, even before our announcement of the deal that continued up until ---+ well that will be continuing on
But widened enough that we did a joint announcement of their participation
And again, the rationale there is, we get upstream connectivity with their processing assets and pipes in the Permian
And then we have downstream connectivity from all the market that we connect to, on what we think is the best intrastate system in Texas, connected to LNG, Mexico, et cetera
You know we are ---+ I think there is enthusiasm for it, but again it's non-binding
Producers I think are increasingly turning their attention to finding additional routes out of the Permian
Sometimes that takes some time to ripen
But certainly, there is interest in it, and will also cultivate interest on the demand side as well
And on the demand side, one of the things that we can do and have talked to people about is, we are a buyer of gas in Texas, because we have a lot of sales gas customers in the state of Texas, and so one of the things we could do, is buy the inlet to this piece of pipe, and that may serve as a bit of a bridge for some of the producer markets out there
So any parts of your question I have missed?
Yeah, we haven't come out with cost yet
But I mean, it is a 1.7 BCF newbuild project
So you are looking at north of $1 billion
I think we build as we started
We ended the year kind of where we started with some declines early and then picking up
I think, some developments that have been encouraging, is the rig count has been up a good bit
The other thing is, and these are related, is that acreage has been changing hands down there
So it's going from people who were not actively developing to people who are actively developing, and that's a positive indication for the basin too
Those are the key things really
I mean, we are running both of these processes simultaneously
And the reason for doing that of course, is to get to a value point that reflects a fully negotiated deal or a fully marketed process and it's not fully marketed or fully negotiated until it's done
And so, we are not there yet and so we haven't [indiscernible] yet
Okay
Yeah so, the open season on El Paso has 150 a day of capacity that's existing, that comes in a bit over time, as the contract rolls off
But that's 150 without moving a muscle
We have got that capacity available and we can do it today
We can get another 900 of expansion, and the first, if you want to think of it this way, the first half of that roughly is relatively small CapEx
It's back pressure valves and things like that, that we probably do on a ---+ and a few pipe modifications
I mean, the interstation modifications, and we can probably do that under our blanket certificate, could do that relatively quickly, and that's a nice pickup
And again, underscores the value of having piped an inactive basin that we can make some adjustments to
The second half of that expansion, to get up to that 900 a day of incremental, would require compression
So that's a little bit pricier, but again, not much
There is not significant, little bit of pipeline built on maybe, but it's not a significant investment, but that would require a 7c
In terms of getting ---+ once you get to Texas, gas will be flowing south and east primarily, east to Corpus and south to Mexico
We are expanding that network with a crossover expansion that we have got in service, and we put in service in September of last year
So we have got ---+ and it is a network
So you have got options there, and it doesn't cost as much to expand that as needed for takeaway
But my guess is, and Tom you can opine, there may be some expansions ---+ if people who want to take significant volumes to Houston, we may need some expansion
That will be a problem
We will be happy to have that problem, but ---+
And the other takeaway ---+ there is other takeaway
When you get to WAHA, that's a significant hub and there is significant capacity coming online from WAHA to Mexico
So that's the other value adding component of the EPNG projects
Well, it's an intrastate project, so it's not a federal process
So if the demand is there, and it's there in a hurry, we can move more quickly
Yeah, it is a competitive environment, but I feel like, we have got the best downstream connectivity here, and we touch all the major markets, including all the big growing markets, and I think that's a real advantage
I mean, Agua Dulce ---+ getting to Agua Dulce didn't use to be a very big deal, you were just in South Texas
If you are in Agua Dulce and connected to our system, and you can go to Mexico or you can go to Corpus Christi or you can go to Houston, then you have really got something
Now, we need to ---+ we are working to sell for the upstream piece, and that's where DCP, I think, is a very nice fit
But there are others out there too, who we could coordinate with, to make sure that we can get the gas to WAHA and of course, EPNG expansion fits very nicely with that
So we think we have got a very good offering
I am sure that the other competitors would say the same thing, but I think that you look at the upstream and the downstream and we have got a very nice offering
Plus, we'd like to buy some of the gas
Thank you, <UNK>
It's early to be talking about that
We have got a non-binding open season that's closing, and I think while the shipper interest, certainly producer interests, this is a maturing situation, as they are looking at takeaway capacity out of the Permian in their own production
And so I think, frankly, we are ways off there, in terms of maturing or ripening the project
I think we have got a good offering
I think DCP can bring volumes to themselves
We can bring purchase requirements to it
I think there are a lot of things that are compelling about it
But I think we are ways off
Now on returns, we have been using as a starting point, 15% unlevered after-tax returns and in projects where we are building off of our network, we have been pretty effective at getting those kinds of returns
And this has some of those characteristics, when you look at the downstream network and you look at upstream potentially on EPNG
On the other hand, where we have secure cash flows under long term contracts with good credits, we certainly talked with our business unit presidents about don't say no to those, if they are just ---+ because they are just a point or two off, bring them to us, let's have a look at them and see if on a risk adjusted basis, we are comfortable with them
So it's not a hard and fast, it's a totality of the circumstances kind of a valuation
I will go with the last question first
So no, there is no suspension of any process
We are going full speed ahead on both processes here
election, as you pointed out, we do have our federal and also, our provincial approval, and that includes the EA and then also the environmental approval
And it also includes, reaching agreement with British Columbia on benefits of their five conditions, which are primarily, benefits to BC, as well as risk reduction associated with marine and land response
There are also many other benefits of this project to British Columbia, that we think are recognized, and think and hope would be taking into account, for creating a lot of B
There is economic development
There is benefits to the First Nations and the communities along the route that we have entered into a mutual benefits agreements with
And we have got a lot of detailed plans and protections that we put in place, and that the British Columbia and federal governments have put in place, to mitigate any perceived risk from the project
Now we are ---+ also, this is a federally sanctioned project
Now we are watching, we are certainly following developments very closely, and the B
---+ the government in B
can certainly have an impact on the project, but it's probably a little premature for us to pine [ph] on those exact impacts at this point
We have a lot of momentum on both the federal and the provincial level from all the work that we have done and that those governments have done to address the concerns that have been raised, and to make sure that there are benefits that are shared with the broader public
So we think we have got good strong support behind us, both at the federal and the provincial level
Yeah, again, we are not changing our outlook and notwithstanding the strong first quarter performance, we are not changing our outlook for the full year
In terms of the debt-to-EBITDA metric changing, I think the main mover there is probably getting the financial arrangements in place for the Trans Mountain project
We are just a few weeks into the second quarter here, and I think there are some promising developments there
The rig count is one thing we have mentioned
Our Haynesville producer becoming more active on the gathering part of it
We are happy to be up 1% year-over-year on crude and condensate and refined products volumes
But it's just a little early for us to calling anything different on our EBITDA at this point
I don't think so
They are very different projects
As I said, the Trans Mountain return is consistent with the average return ---+ the overall return in our back ---+ the overall multiple of EBITDA in our backlog, which is about 6.7 times
So they are not ---+ they are really very ---+ they are very different projects, and so, I don't think you can analogize much, except to say, that we got compensated for the work that we did in originating and developing the project at Elba, and we expect ---+ as we did on Utopia, and we'd expect the same to be true on Trans Mountain
I think that's not a decision we are confronting yet
We fully expect that the two track process is going to produce successful results for us, so that's what we are basing our decision making on right now
Well first I will say, we feel very strongly that it was not appropriate to initiate those proceedings, because not all of the facts around those assets were fully taken into account in the section five process
We are also in discussions with our customers right now, and we did not expect that the ---+ anything other than ---+ at most, a de minimis impact on the margin for those assets
No, we would like to ---+ we have existing assets that serve the Permian
EPNG of course, we have the line on the Texas intrastate, so that line is fully utilized and constrained and difficult to expand
So we are already there, and we are absolutely looking to expand our presence there
I should have mentioned too, NGPL serves the Permian and brings the gas northbound to Chicago, and their opportunities on that system as well, to take advantage of the developments there
I think, Tom correct me on this
We got orders on the projects that were time critical already, before the quorum disappeared early in the year
And so now, I think where we are is, we are not going to find the time critical issue, so long as they get quorum by midyear, thereabouts or even late 2017. So it's not constraining us right now, <UNK> <UNK>
That was really to set a date that was out there, kind of at the end of the timing thinking
So it was just a negotiated date, and it was put out there to be kind of at the end of the timing
Possible
No, the agreement doesn't change
No, the agreement does not change
Tom, do you have a feel for that?
That's still consistent with our expectation?
The upfront, giving a significant portion of the proceeds upfront
Yeah, very early to tell
Again, <UNK>, it would be ---+ if the demand is there at a high enough rate, you wouldn't have to fill the whole pipe
Tom, our purchase business is over 1 BCF a day, that's the whole portfolio, right?
2.5 BCF a day and Eagle Ford is declining
So it would be a nice ---+ at an attractive price, a nice way to fill in for that, and the purchase part of portfolio, the Texas intrastate
Too early to tell what that mix will be
So it's very difficult to ---+ really, it's effectively impossible to break the expansion from the existing Trans Mountain system
It's effectively a twinning of that system, with some blind reactivations in it, and common facilities at the terminals and at the dock
So really the way we would be selling this, either at JV or an IPO is with the existing system as well
And in the IPO, potentially with a broader offering of our Canadian assets as well
I think it goes back to what Rich said earlier
We would look to have enough coverage over our dividend to be able to continue to fund the equity portion of a growth capital plan
So we are looking at ---+ we are going to be looking at all of that, as we come up with our guidance to the latter part of this year ---+ in the latter part of this year
The timing is this quarter, and we haven't been more specific than that <UNK>
We are running both processes simultaneously, and again, the point there is, that we want to get ourselves to a fully negotiated JV side or fully marketed on the IPO side to kind of see what our value is
We would expect that the FID would come close in time, with the conclusion of those processes
