Kinder Morgan, Inc. (KMI) Q4 2019 Earnings Report, Transcript and Summary

Welcome to the Quarterly Earnings Conference Call. [Operator Instructions] I would like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Thank you, sir. You may begin.

Thank you, Denise. Before we begin, as usual 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. Before turning the call over to Steve and the team, let me begin this call by touching upon the state of the energy segment of our economy as we start this new decade. As a share of the S&P 500, the energy business has declined from 16% at its high point in 2008 to about 4% today. There are many explanations for this deterioration in relative value, and some of them are frankly beyond the control of our industry, but let me concentrate on a few things I believe our business needs to do if we are to succeed and prosper in this challenging environment. We need to show our investors that we have a path forward to produce reasonable returns for our shareholders on a sustainable long-term basis. This means that as an industry, we have to produce positive cash flow from our operations and use it to benefit our shareholders. We also have to constantly explain why fossil fuels and particularly natural gas have a long runway of future utilization under even the most bullish scenarios for converting the world's economy to renewable fuels. Reams of research have been published underpinning this position, but it often gets overwhelmed by sloganeering and political noise. Finally, we have as an industry to do as much as we reasonably can to reduce our emissions, becoming part of the solution, not part of the problem. I’ve outlined on previous calls the success we and others in the midstream segment have had in lowering our methane emissions. And the whole industry needs to move forward on this track and report results in a transparent way. Now let me apply the financial part of what I’ve just said to Kinder Morgan. Our strategy is in many ways a conservative one, which I think is in keeping with the nature of the industry in which we operate. Energy infrastructure companies like Kinder Morgan generate lots of cash flow, and the test of good management is how that cash flow is utilized. Since the collapse of oil prices in 2014 and 2015, and its decidedly negative impact on the equity value of the energy segment, including ours, we have prioritized getting our balance sheet in shape, returning to our - dollars to our shareholders through dividends, buying back shares on an opportunistic basis, and pursuing expansion projects when they promise a high and secure IRR. We believe that approach has been the correct one, and we will continue to follow it in the future. A prime example of our thinking is our gradual increase in the dividends we pay our shareholders. I’ll remind you, we've gone from $0.50 in 2017 to $0.80 in 2018 to $1 in 2019, and as promised, intend to pay $1.25 for 2020, and all of those dividends have been amply covered by our cash flow. Looking forward, I assure you that we will not be chasing acquisitions or expansion projects that do not meet our strict criteria for delivering solid and transparent returns. We are helped by having such an extensive system of pipelines and terminals, which allows us to undertake extensions and expansions that benefit our customers and achieve good returns for KMI without taking on the risk inherent in building completely new systems not tied to our present assets. I can’t promise that we won’t make mistakes, and we certainly will. But I hope you understand that we have a coherent, rational approach to our business that I believe will provide value to our shareholders over the coming years. Steve?

Thanks, Rich. I’ll cover a few highlights and turn it over to our President, Kim Dang, to give you the update on our segment performance. And our CFO, David Michels, will take you through the financials, then we’ll take your questions. The summary on KMI is this, we’re adhering to the principles that we’ve talked about for the last several quarters now and have laid out for you. We have achieved a strong balance sheet, having met and now improved on our approximately 4.5 times debt-to-EBITDA target and with a solid BBB flat rating from all 3 ratings agencies. We are maintaining our capital discipline through our return criteria, a good track record of execution and by self-funding our investments. We are returning value to shareholders with a 25% year-over-year dividend increase and another 25% increase coming in dividends declared in 2020, and we do continue to find attractive growth opportunities. Again, strong balance sheet, capital discipline, returning value to shareholders and finding additional opportunities across our network at attractive returns. Those are the principles we've been operating by. And during the third - fourth quarter, with the closing of the sale of Cochin and KML to Pembina and the subsequent sale of the Pembina shares we received as part of the consideration for the transaction, our debt-to-EBITDA stands at 4.3 times. We haven't changed our long-term target of 4.5 times, meaning that in our 2020 plan, we have $1.2 billion of balance sheet capacity. A few points on the balance sheet flexibility. First, it’s good to have it. We worked hard to get it, having reduced debt by $9.4 billion over the last 4 years or so. And as we said in our guidance in December, having this flexibility is, we believe, valuable to our shareholders, the flexibility itself. Second, we will be opportunistic in turning that capacity into even greater value for our shareholders. We also have not changed our policy that we announced in mid-2017 when we introduced our share repurchase plan. That policy is that we will be opportunistic on share repurchases, not programmatic, and that message hasn’t changed. Also, a few points about creating shareholder value with our project investments. First, we do achieve attractive returns on our project investments in aggregate. From 2015 through 2019, we have invested about $12 billion in project capital. That’s to our share and not including CO2 where we have higher return thresholds. In aggregate, those projects were approved on economics that projected about a 6 times EBITDA multiple. In fact, we're doing slightly better than that already attractive multiple. We'll take you through the details of that at next week’s investor conference. Second, but also important, are the things that we don’t do or didn’t do, the projects that we did not invest in or proceed with. A few examples, we did not participate in the build-out of gas pipelines in the Mexico interior. We did not proceed with the Northeast Direct gas project in New England back in 2016. And we sold our Trans Mountain project when it became clear that we couldn’t confidently finish if we started. And we sold it to the one party who had the capability to finish the project. We're happy with all of those decisions and many more. The point of all this is that we make the right decisions on behalf of our shareholders. We act as principals, not agents. We act like owners, and we protect our owners resources. Again, we’re consistently applying our capital allocation principles, and our performance has demonstrated the value of applying those principles. A few highlights for the fourth quarter. As mentioned, we closed on the KML and Cochin sale in December and converted the shares we received earlier this month. We placed 3 of the 10 Elba Liquefaction units in service by the end of the year with a fourth unit that went online last week, and we expect to have all 10 in service by midyear. With the first unit going into service in September of last year, we received 80% of our share of project revenues. Gulf Coast Express went into service in the third quarter of last year. The fourth quarter update is Waha base has almost immediately widened, showing once again the need for an additional pipe. Just to put things in perspective, the spread is about 2 to 3 times the value of the tariff. The capacity is valuable, and frankly we wouldn't mind holding a little ourselves. On PHP, we have now acquired 99-plus percent of our right of way. This is a significant milestone, given that we are going through the Texas Hill Country. We are well along in the construction of the western spread. We believe that we are close to getting our federal permit so that we can begin construction on the eastern spreads. As we said on the last call, that process has taken longer than we planned, but we still project today as we did last quarter, an early 2021 in-service date. We believe the agencies involved have been extremely thorough, and the permit will therefore be strong. Both of our Permian gas pipeline projects bring us additional opportunities in our downstream pipes. Combined, they bring 4 Bcf a day of incremental gas to the Texas Gulf Coast where we have our large intrastate pipeline system. Those projects bring opportunities for downstream expansion and optimization as we find homes for that incremental gas through our connectivity with LNG facilities and Texas Gulf Coast power, industrial and pet chem demand. Our backlog includes about $325 million to expand and improve connectivity along our Texas intrastate pipeline network to enable us to place the incremental volumes that are and will be hitting our system. We’re still working with customers on a third 2 Bcf a day pipeline called Permian Pass. This remains a work in progress. It’s not in the backlog. We believe, eventually, this pipeline is needed, but probably not as soon as we thought this time last year. In the meantime, we’re continuing to talk with producers and potential partners and believe, number one, the long-term dynamics of needed gas takeaway capacity out of the Permian Basin are strong and that our extensive pipeline network in Texas put us in good position to pick up this opportunity when the market is ready to sign up for it. These Permian projects show us taking advantage of a very positive situation. There’s large supply growth in Texas and large demand growth in Texas. And we can bridge the 2 and connect to our premier Texas intrastate pipeline network and stay entirely within the state of Texas, where we have more commercial flexibility. As we pointed out at the conference, 70% of natural gas demand growth between now and 2030 is projected to be in Louisiana and Texas, and our systems are well positioned to benefit from that. Finally, our backlog now stands at $3.6 billion. That’s down from last quarter, primarily due to us placing a processing plant in service during the quarter and removing the backlog associated with KML projects from the KMI backlog. We will remain disciplined here, seeking returns that are comfortably above our cost of capital. We believe our historical experience, the size of our network and the market dynamics, particularly in natural gas, will continue to provide the opportunity to invest in 2 billion to 3 billion a year. That's what our track record would show. But if we don't find that much in new opportunities, we are not going to force it, as the examples I gave you show. We have other opportunities to deliver value to our shareholders. We will maintain our discipline. And with that, I turn it over to Kim.

Okay. Thanks, Steve. Well, I’m going to sound like a broken record because we’re now up to 8 quarters, 8, that’s 2 years in a row in which natural gas transport volumes on our transmission pipes have exceeded the comparable prior year by at least 10%. For the fourth quarter, transport volumes were up 14% compared to the fourth quarter of 2018. Specifically, EPNG was up almost 1.3 Bcf a day due to increased Permian-related activity and colder California weather. TGP was up over 1 Bcf a day due to expansion projects. CIG was up 780 million cubic feet a day due to increased DJ production and higher heating demand on the front range in Colorado. KMLP volumes were up 542 million cubic feet a day due to the Sabine Pass Expansion. GCX went into full service, and we are now routinely operating at full capacity of approximately 2 Bcf a day. And the Texas intrastates were up over 500 million cubic feet a day on continued growth in the Texas Gulf Coast market and the additional supply coming in from GCX. On our gathering assets and natural gas, volumes were up 8% or 265 million cubic feet a day from the fourth quarter 2018, and that was driven primarily by higher volumes in the Eagle Ford and the Bakken. Our Bakken gathered volumes were up 18%, and our Eagle Ford volumes were up 22%. Haynesville volumes were essentially flat versus the fourth quarter of 2018. NGL transport volumes were up 23% in the fourth quarter compared to the fourth quarter 2018, and that was due to higher Cochin volumes. Our product segment was also up nicely in the quarter as we received strong contributions from our Bakken fleet assets, the splitter and SFPP. Overall, refined products volumes were flat in the quarter compared to the fourth quarter 2018, and crude volumes were also essentially flat. The terminals business was down in this quarter compared to the fourth quarter of 2018. The liquids business, which accounts for nearly 80% of the segment total, was impacted by the December sale of KML. But in our Houston liquids terminals, we saw record volumes. We saw record quarterly throughput of 137 million barrels. That's about 1.5 million barrels a day, and we averaged 328,000 barrels a day in refined products going over our docks. Our boat business was down compared to the fourth quarter 2018, with gains at our - from our petroleum coke handling business more than offset by weakness in coal export volumes. Finally, CO2 was hurt by lower commodity prices and lower crude volumes. Weighted average NGL price for the quarter was down $5.34 per barrel. That’s about 19% versus the fourth quarter 2018. And our weighted average crude oil price for the quarter was down 10% or $5.67 per barrel. On the crude oil decline, that was largely driven by our Midland-Cushing base of hedges. Crude oil production in aggregate across all the fields was down 5% compared to the same period in 2018. Net NGL sales volumes were up 4%. And our CO2 operations, although we’re down this quarter, we still do benefit from holding billions of barrels of original oil in place. And we continue to find additional opportunities to exploit that resource base and extend the productive life of SACROC and Yates in particular, as we have for years. But we will remain disciplined in our investment approach and set higher return thresholds for these investments. With that, I’ll turn it over to David Michels.

All right. Thanks, Kim. So today, we’re declaring a dividend of $0.25 per share, which is in line with our budget to declare $1 per share for the full year 2019. That’s a 25% increase over the $0.80 per share declared for 2018. KMI's earnings per share this quarter was $0.27 per share, up 29% from the fourth quarter of 2018. And our adjusted earnings per share and DCF per share both grew 4% and 5% respectively from last year's fourth quarter. We generated DCF per share of $0.59, which is 2.4 times or approximately $785 million in excess of the declared dividend. For the full year 2019, we generated DCF of $2.19 per share, which is $0.01 off of our plan of $2.20. We had projected on the third quarter call that EBITDA and DCF would end the year below plan. EBITDA was less than 3% below plan, and DCF was only slightly below plan. Since the third quarter, we closed the gap relative to plan due to good commercial and operational performance in the fourth quarter. In fact, DCF ended the year below budget by only $13 million, which is less than a half of 1%. The main drivers of our performance versus budget include our Elba Island liquefaction facility coming on later than budgeted, lower commodity prices and volumes impacting our CO2 segments, and our FERC 501-G settlement, partially offset by strong Permian supply growth benefiting EPNG more than we had budgeted. So those are the largest drivers of our EBITDA performance. DCF was impacted by the same items, but also benefited from favorable interest expenses during the year and the add-back of non-cash pension expenses. So that was performance versus plan for the year. Now onto the details for our fourth quarter versus fourth quarter of 2018. Revenues were down $429 million from the third quarter -- excuse me, from the fourth quarter of 2018. But we also had a decline in the cost of sales in the quarter of $423 million, which nearly offset the revenue decline, meaning that our gross margin was about flat from last quarter of last year. That's a good reminder that given the way that we contract particularly in our Texas intrastate business, gross margin, which is revenue less cost of sales, is a better indicator than performance than revenue alone. Additionally, we recognized $112 million of non-cash gains on derivative contracts during the fourth quarter of 2018. We treat those non-cash gains, which don't - on those derivative contracts that didn't settle in the period as certain items, and we exclude those from our non-GAAP metrics. But for those non-cash gains, therefore, gross margin was up over $100 million period-over-period. You’ll see on the income statement, the gain/loss on divestitures and impairments line item. That includes for the fourth quarter of 2019 a $1.3 billion gain related to our KML and U.S. Cochin pipeline sales, partially offset by $364 million of asset impairments on our gathering and processing assets in Oklahoma and Northern Texas, driven by reduced drilling activity and on our Tall Cotton asset and our CO2 segment driven by reduced investment expectations. The loss, earnings from investments - excuse me, from equity investments line item includes, for the fourth quarter 2019, a $650 million impairment on our Ruby pipeline investment, which we took in the quarter as a result of upcoming contract expirations along with competing natural gas supplies. Net income available to common stockholders was up $127 million or 26% versus Q4 of 2018 due in part to the KML Cochin gain in the quarter. Net income available to common stockholders adjusted for certain items, or what we call adjusted earnings, were up $24 million or 4% compared to the fourth quarter of 2018. Adjusted earnings per share was $0.26 for the quarter, up $0.01 or 4% from the prior quarter. Moving on to our DCF performance. Natural gas was up $120 million or 11%. We saw greater performance from last year due mostly to expansion projects. The Elba's trial and liquefaction facilities contributing with 3 units in service last year, Gulf Coast Express was placed fully into service, and TGP had multiple - contributions from multiple expansion projects. Kim covered the main drivers of the other segments for the quarter. Now moving to G&A and corporate charges, those were higher by $34 million due to lower overhead capitalized projects and higher non-cash pension expenses. So those are the main changes in adjusted EBITDA, which was $58 million or 3% above Q4 2018. Interest expense was $18 million lower driven by our lower debt balance and lower LIBOR rates benefiting our floating interest rate swaps. And that was partially offset by interest income that we recognized during the fourth quarter of 2018 due to sale proceeds we had on hand from the Trans Mountain sale. Sustaining capital was $30 million higher versus the fourth quarter of 2018. However, we had budgeted to spend more sustaining capital in 2019, and we actually ended the year favorable to plan in the sustaining capital category. Total DCF of $1,354,000,000 is up $81 million or 6%, and our DCF per share of $0.59 was up $0.03 or 5%. Moving to the balance sheet. We ended the quarter at 4.3 times debt to EBITDA, which was a nice improvement from the 4.7 times at the end of the third quarter of 2019 and from the 4.5 times at the beginning of 2019. It’s also better than our budget of 4.5 despite EBITDA coming in a bit below budget. We remain focused on capital discipline, which means we continue to only invest in projects that meet our high hurdle rates, and we continuously review our capital plan. In 2019, those efforts resulted in more than $300 million of lower capital spend compared to what we had budgeted. Looking at the net debt, our adjusted net debt ended the quarter at $33 billion, which is down $2.2 billion from the third quarter and $1.1 billion lower than year-end 2018. We didn't issue any KMI bonds in 2019. And in fact, the last KMI bond issuance was nearly 2 years ago in February 2018. Additionally as Steve mentioned, but I think is worth mentioning again, our net debt is down $9.4 billion since the third quarter of 2015, so nice progress there. To reconcile the change in net debt for the quarter, we had DCF of $1.354 billion. We had $1.55 billion of proceeds from the Cochin sale. We sold our share of KML's preferred equity, $215 million of which was in our net debt. We contributed $600 million of growth capital and contributions to our joint ventures. We paid dividends of $570 million and we had a $250 million working capital source of cash, which is mainly interest expense accruals. And that reconciles you approximately to the $2.2 billion decrease in debt for the quarter. For the full year reconciliation to the $1.12 billion of lower debt, we had DCF of $4.993 billion. We had $1.67 billion of divestitures, mostly represented by the U.S. Cochin sale. We removed the $215 million of KML's preferred equity. We had growth CapEx and JV contributions of $2.92 billion. We paid dividends of $2.2 billion. Paid taxes on the Trans Mountain sale of $340 million, and we had approximately a $300 million working capital use of cash. And that gets you to the main pieces of the $1.12 billion decrease in net debt for the year. And with that, I’ll turn it back to Steve.

All right. So a couple of quick reminders before we start the questions. Number one is, as I'm sure many of you know, we will have our investor - Annual Investor Conference next week. And so David and Kim and I and others will be going through the details of 2020. So we'll kind of ask you to wait for that more detailed presentation in terms of the 2020 plans. [Operator Instructions] All right. Denise, with that, let's open it up for questions.

Thank you. [Operator Instructions] And our first question does come from Shneur Gershuni with UBS. Your line is open.

Hi. Good afternoon, everyone. I'll keep my questions light given the Analyst Day next week. Maybe to start off, Steve, you’ve been very careful to say no programmatic buybacks in the past and you’ve reiterated it today, and you just want to use it with respect to opportunistic buybacks. Is there a plan, to either share with us today or at the Analyst Day next week, if you plan to complete the authorization by a certain point in time? Just a little bit more color with respect to how you’re thinking about buyback over a longer term basis?

Not really. I mean the guidance that we're giving is very consistent with what it’s been all along, which is we evaluate these decisions based on return. We do look to purchase opportunistically and not programmatically. We’ve never published any kind of target price, et cetera. And so you put that together, and you say we’re not going to announce a specific timing for the conclusion of the program either. But we have used about $525 million of the $2 billion program. We have used it opportunistically, and we are pleased with the results of our share repurchases under the program to date.

Okay. Fair enough. And maybe as a follow-up, I was just wondering if you can expand a little bit on the changes in the backlog that you put out in your prepared remarks. Has Elba already been removed from it, with it coming online? And were there any changes to your CO2 outlook with respect to the backlog or everything is kind of...

Yeah. So Elba, what we’ve been doing on Elba is since we've put the first unit in service, and that's really - I mean that's really when the balance of the plant was complete and when the substantial 80% to our share of the revenues started, we started reflecting Elba at - pulling it off the backlog as the units were coming on. Correct, yes?

Yes.

Okay. And then we have also put in service in our natural gas group as I mentioned, a processing plant in the Bakken area, which - that went into service. And so then that came off the backlog. And that's really the biggest chunk in that movement.

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

Good afternoon. Just wanted to start off with a question with M&A, actually, and it seems like Kinder could be in a position to do different things right here. We saw earlier this week, Magellan announced terminal sales at a valuation that appears to be quite robust, given where a lot of things trade today. And just wondering how you guys think about kind of portfolio optimization within that context, given the private equity bid there. On the other side, it seems like growth is slowing in certain parts of midstream, and maybe there's the potential to kind of roll up other players out there. And I know Kinder has been successful at rolling things up in the past. Just wondering how you think about those two different angles, and if anything could make sense for you guys going forward?

Well as Rich said at the start, our approach to our business and to this industry is conservative. And so we spent a lot of time and did a lot of work to get our balance sheet in the shape that it’s in. And we’re really not interested in hurting our leverage metrics through M&A or through anything else for that matter. Look, we’ve always looked around at opportunities, and we would continue to do so. But they would need to meet pretty substantial return criteria, similar to what other uses of capital would be. And so that kind of narrows that opportunity unless something really valuable comes along. You mentioned the recent announcement on asset purchase and sale between midstream operators. We did close a very small acquisition of a pipeline in South Texas. That was a very nice fit into our Texas intrastate system. And we certainly - and we did that at attractive terms on an attractive return for that capital invested, and so we’ll keep our eyes open for things like that.

Got you. And just as far as the prices that you see out there, I mean is that something that you pursue, just given how it was so higher than where a lot of guys trade right now or on the sale side?

Well, you mentioned the private equity bid that's out there. And that's a phenomenon that certainly we’ve observed as well, which means there's competition for those things. And really, Jeremy, I think it comes back to we’re just going to be very judicious with our shareholders money here. And we’re going to do things that we can do that we are very, very confident are going to produce value for us.

The next question comes from Spiro Dounis from Credit Suisse. Your line is open.

Hey. Good afternoon, everyone. Maybe just start with the project backlog. Steve, I appreciate your comments around capital discipline. I think that should be pretty welcomed by the market. But I just want to look to the backlog, it’s about 1.5 years of growth here going forward. And so just curious how we should think about how and when you start to replenish that backlog, and when you'll be in a position to sanction more projects outside of Permian Pass?

Yes. Sure. And actually it's something I should have said in response to Shneur's comment is as I said in talking about the backlog, there was also to KM's share, about 55 million or so of KML backlog that came out as well. So that, in addition to the processing plant, was the other explanation for the change quarter-to-quarter. Look, we don’t approach capital investments with the idea of replenishing a backlog. And so the information or the guidance that we can give you is if you look at over a very long period of time, 10 years plus, and you look at what we've been able to find on our network, it's been between $2 billion and $3 billion. And we'll show you this, it's in Kim's presentation, the detail on this. It's been between 2 and 3, and the mean has been 2.5. Next year, we've got 2.4 in, in the budget that we announced in December. We'll keep looking for those opportunities and find them as they - what we've seen, what we've experienced is that the opportunity to do those investments at attractive returns are the opportunities that really are along our network as it stands right now. And we've got a very vast network, and I think we'll continue to find opportunities there, but they'll be up and down. They could be in the low 2s, or they could be like they were in this past year, around 3. But we don't aim to replenish the backlog. We follow kind of what we see coming down the pike, including things like Permian Pass. And that's what gives us some confidence that our kind of 2 to 3 historical is probably still in the ballpark for us over the next little while.

Got it. That's fair. I appreciate that. Second question, just around ESG. You guys have been leaders here in midstream, and it looks like you're getting credit for that. And so I guess, one point to me what some large investors have come out and said, in the last 2 weeks, aiming to really sharpen their focus on ESG and screening investments in that manner. So just curious how much ESG really drives your decision-making on an asset-by-asset basis? Would you ever consider selling something or buying something in order to fill in the ESG standard? And specifically, I’m thinking about is something like your coal terminals, right? If you felt like that could be harmful to your ESG brand, would that be something you would consider selling?

Yes. So part of the ESG is G, which is governance, which is taking care of your shareholders and doing the right things with their money. And so we have not looked at it from the perspective of investment. We’re very, very weighted to natural gas, and that's a good business for us, and it's a big part of the solution going forward as Rich mentioned. But I do want to acknowledge what you said, we have tried to be leaders in this. And we've done, I think, a very good job across our business units, our operations. This isn't just some corporate thing. This is something that is permeated through our operations. And we have earned the number two ranking in our sector for how we manage ESG risk. Now that job is not done. We have to keep going. But we do things, for example, like look at scenarios of continued methane emissions reductions and we've really overachieved the target there, if you will. There's not really such a thing as overachieving it. But I mean we had a target in the one future group, which is a 1% limit across the entire chain from production through distribution. And the transmission and storage sector's allocation of that 1% is 0.31%, and we're at 0.02%. And so we've really done a very good job there. And that's good operational blocking and tackling. And by the way, that's in our shareholders' best interest, too, because we get paid to move methane, not to lose it. So that’s been a multi-decade process. And that's an example of how we incorporate it into the way we do business and the way we think of things. But we're not going to go out and do a dilutive renewable acquisition, nor are we going to do an economic divestiture from our investors' standpoint. We're keeping an eye on the G as well as the E and S.

The next question comes from Tristan Richardson with SunTrust. Your line is open.

Good morning – good afternoon, guys. Just a project question on Permian Highway, just a clarification. Can you talk about the expected timing of permitting on the federal side that you mentioned would allow the eastern spread to kick off?

Make it a point of not speaking for federal regulators. So all I can say is based on how fully the record is developed, and based on certain statutory timelines that are built in to the authorizing legislation, we expect it to be soon. And that's why I used the word soon and not a more specific one.

Okay. And then as a follow-up, just has the commercial discussion around Permian Pass changed now that the market in the world has seen how short-lived that narrow spread was?

Certainly everybody's noticed that, I think. I would say that we first saw, as we reported when we came out in the third quarter, we saw - I would tie it to - after the producers came out with their second quarter guidance, which was after we did our second quarter, and they tightened up on their capital plans, et cetera, that there was definitely a cooling of what had been some fairly active commercial discussions that we thought might have even led us to an FID decision last year. And that clearly has been delayed. I don't think it's cooled any further than - since then. And I think people do recognize that gas - additional gas takeaway is going to be needed. And something that I thought was interesting that one of the fundamentals guys wrote about is in a Permian, 97% of the value in the well is in the oil and the liquids that are produced. And oil prices are still pretty good. And the Permian has been completely debottlenecked to the point where Midland is trading above WTI. So that suggest, if you can economically produce oil, you're going to need to find a way to put the gas away. And we already have a constrained or a high basis differential between Waha and ship. And so I think as people start to evaluate their capital plans and think about what's economic to do and not, that they’re going to ultimately need some additional takeaway capacity. We can't guarantee that we're going to get it, but we think we're well placed for it.

The next question comes from Keith Stanley your line is open - from Wolfe Research.

Hi, thanks. Just wanted to follow-up on the M&A topic. The last call, you guys had cited some inbound interest at attractive multiples on some assets. Just curious if you're still getting interest in specific assets and level of optimism you can execute on accretive sales this year?

Yes. So this kind of came up in Jeremy's question where he pointed to the high PE bid. And what I would say is that there is a differential between how private equity investors, the multiple of which private equity investors place on the cash flows through certain assets that we generate and what it appears the public markets place. And you can see that in evidence of what the multiple was on Cochin You can see you it on what the multiple was on Utopia. That's out there for sure. But like these other things, I think what you're hearing as a theme for us is we are going to be careful and conservative. We're going to want to make sure that those numbers really work for us. And so, Keith, we're not giving any guidance and really can't practically give you any guidance on something being monetized this year or at any particular time period.

Okay, thanks. That’s it from me.

The next question comes from Michael Lapides with Goldman Sachs. Your line is open.

Hey, guys congrats on a good quarter. Real quick question. Just curious, over the last 30 to 60 days, how your conversations with producer customers have been, given how weak natural gas prices especially over the last couple of weeks have been? And how you think about how that flows through both your gathering business, but even some of the long-haul pipes, that have significant producer counterparties instead of regulated utility counterparties? Thinking like Ruby, obviously, given the impairment, but even some of the smaller ones like Fayetteville Express or MEP?

Okay. So a lot in there, but I think there are two things. One is the conversation is fundamentally different with an oil producer who is also producing natural gas, like the people in the Permian for example, right? And so that's where a lot of that incremental growth in gas production that we expect, we've seen this. Others have seen it a shift in where the growth is going to come from away from kind of some of the dry gas plays and more toward the associated gas plays, like what you see in the Permian and the Bakken. On the other hand, I mean there's no doubt that with gas prices where they are. The dry gas producers are under some strain, and they're being very careful and thoughtful about how they are managing their business, and those folks are our customers, and we're in good contact with them. And it's not -- those are not discussions about growth. Well, some of them are, but they're more discussions about making sure that we continue to have adequate credit support and that we're being constructive where we can be, et cetera. But the dry gas plays are more challenged and the associated gas that's coming out of the Bakken. I mean I think the next solution in the Bakken really needs to be incremental residue gas takeaway capacity out of there, and we already talked about the Permian. So no more there. Now on the other assets that you mentioned, specifically, we talked a little bit about Ruby. That's a challenged asset, challenged for the reasons we -- well, it's coming from the Rockies. Rockies is overpiped in terms of an export capacity basis. That's been the case for a while now, and there are alternative sources from Canada, for example, to serve the market in the northwest. So that's just - that's a challenged asset and FEP is challenged as well. But MEP, it's been a little bit of ups and downs, but we're seeing nice positive spreads that we're able to transact at. That's a little bit more of a - there's a multi-zonal system. It gives us access to a lot more supply and delivery interconnects and takeaways. So that asset has improved - improved some from the prospects that we had. No doubt, contracts that roll off there and that rolled off last year rolled out into a much more challenged spread environment, but there's still positive economic value on that asset. And so those are - that's kind of the rundown on those three.

Got it. Just one quick follow-up, any update on the JV you had talked about with Tallgrass, kind of in the Rockies and that neck of the woods with multiple assets involved. It's been a little quiet on that front.

Yes. We really haven't been able to make anything work there in terms of - we did an open season to secure some contracting - to recontract some expiring capacity on HH, which will go through Pony Express on its way to Cushing. We weren't able to do any other conversion, upstream or other expansion related projects. But we do still have pipe in the ground in the west that we are looking at alternatives on and continue to look at alternatives there.

The next question comes from Ujjwal Pradhan with Bank of America. Your line is open.

Good evening. Thanks for taking my question. First one, I wanted to touch briefly on your LNG exports market outlook. I think some global forecasts out there seem to paint a picture of the U.S. led LNG supply growth overwhelming global demand growth over the next couple of years. How concerned are you about risks to your overall nat gas supply to LNG export facilities in the U.S.?

We’re very happy with the LNG customers that we have, and I think the facilities that are coming out of the ground are coming online. And the way our contract structures work is we're getting paid for the capacity whether it's used or not. But they are using it. And so we're not - we're not exposed to and the way we structured everything, even on Elba, our contractual structure on Elba, is our contractual structure is such that we are not exposed to the vagaries of global commodity prices in natural gas. So I think we - obviously, we're interested in seeing additional LNG infrastructure get built and we'd like to be the ones to serve it. We're - depending on the day, 40% to 50% of the throughput that goes through to LNG exports. And that's been a nice growth story for us, and we'd like to see that continue to grow, but we're not exposed to, again, not exposed to the global LNG price because of the way our contracts are structured.

Got it. And maybe a quick follow-up on the M&A discussion earlier. If you were to able to do sizable asset sales this year, what would be the priority for the use of those proceeds?

Again, we make those - we've gotten to a milestone, obviously, on the balance sheet as we pointed out. And the way we've looked at uses of cash is further debt reduction, share repurchases, dividends or projects. And we make those determinations based on what we expect the returns to be from them. And that mostly comes down to after you've secured your balance sheet, you've secured your dividend, and we're meeting as we - what we projected in 2017. Then you look at the trade-off between a share repurchase and a project, and you make adjustments for the different nature of those two assets or those two investments. And you do the best return opportunity - risk-adjusted return opportunity that you face. So the same order of operations we've talked about before.

And there are no other questions at this time.

Okay. Thank you very much for sharing part of your day with us. Have a good evening.

Thank you. That does conclude today's conference call. We appreciate your participation, and you may disconnect at this time.