Rich Kinder - Executive Chairman Steve Kean - President & CEO Kim Dang - VP & CFO Tom Martin - President, Natural Gas Pipelines.

Kristina Kazarian - Deutsche Bank Shneur Gershuni - UBS Brandon Blossman - Tudor, Pickering, Holt & Company Jean Ann Salisbury - Sanford C.

Bernstein Brian Gamble - Simmons Darren Horowitz - Raymond James Jeremy Tonet - JPMorgan Ted Durbin - Goldman Sachs Faisel Khan - Citigroup Craig Shere - Tuohy Brothers Chris Sighinolfi - Jefferies John Edwards - Credit Suisse.

Welcome to the Quarterly Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct the question-and-answer session. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point. Now, I’ll turn the meeting over to our host, Mr.

Rich Kinder, Executive Chairman of Kinder Morgan. Sir, you may begin..

Okay, thank you, Laura, and welcome to our call. As always before we begin, I'd like to remind you that today’s earnings release and this call includes 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.

We encourage you to read our full disclosure 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 a list of risk factors that may cause actual results to differ materially from those in such forward-looking statements.

Now let me begin by just making a very few introductory comments before turning the call over to our CEO, Steve Kean, and our CFO, Kim Dang. First of all, the operating results for both the second quarter and year-to-date are very consistent with Kim's guidance, which she shared with you on our Q1 call and which were in our Q1 earnings release.

And I think this demonstrates once more that our assets are consistent generators of strong cash flow, even in these times of volatility. Several specific events have happened since our last call, mostly positive. First of all, the National Energy Board of Canada recommended approval of our Trans Mountain Expansion Project.

This is an important step, but we still need an order in council and that decision is expected in December of this year. We also entered into joint ventures, as you know Southern Company on our SNG natural gas system and with Riverstone on our Utopia pipeline project, and have also divested an additional approximate of 175 million of non-core assets.

These steps allow us to significantly improve our balance sheet with the expectation of now ending this year 2016, at about 5.3 times debt-to-EBITDA, which is an improvement from the 5.5 times budgeted.

In addition, we’re also reducing our future need for expansion CapEx, and all of this is getting us measurably closer to being able to return significant additional cash to our shareholders through either increasing the dividend or buying back shares.

I can assure you we will continue on this right path, as we work to maintain and strengthen our balance sheet, while at the same time preparing to deliver increased value to our shareholders. And with that I'll turn it over to Steve..

All right, thanks. I’m going to update on capital and counterparty credit and then hit on some additional segment highlights and returns that we're seeing.

On the capital update, we've been talking for several quarters now about high grading the backlog and how we do that, that consists of make me sure that we're attending to our balance sheet, but also ensuring that we grow our DCF per share through investments that we're making at attractive returns and that we’re now funding out of the excess cash flow that we generate, without leaving to access the capital market.

The high grading includes select joint ventures on assets and projects the Utopia JV shows that we can originate high value mid-stream projects that are valued by investors.

On SNG, we're entering a JV with our largest customer in a transaction which brings value to that asset, through specifically identified opportunities and is accretive in the medium-term. We've trimmed some projects from the backlog where they don't make sense from a return standpoint or in today's commodity price environment.

Now, we've also made scope and cost savings improvements and in some cases deferred costs on projects that we're proceeding with. One example of this improvement is, in the gas group in this quarter and part of the reduction in the backlog is due to this.

We renegotiated a contract with a customer, as a result of that renegotiation was a reduction in our capital spend for that project a boosted return, acceleration of the end service data of a portion of the revenues. And we freed up some capacity that we believe we can resell.

Meanwhile, the customer got the benefit of a lower cost longer term deferred payment. We're going to continue to work on additional opportunities within our backlog and in addition to our current projects.

The result of these efforts is a backlog which now has an EBITDA multiple of 6.5 times, CapEx, that's excluding CO2 projects which tend to have higher returns, but are more commodity price sensitive.

We now expect to spend discretionary capital of 2.8 billion in 2016, which is down from 2.9 billion last quarter that we estimated for the year, and down 500 million from as planned for the year.

Our backlog is now 13.5 billion, down from 14.1 and that's a function of projects going into service, the Utopia JV, the project renegotiation that I mentioned, and that is against some project revision. So in short, we are making good progress. We're doing what we told you we would do.

And that progress is on the balance sheet, as well as positioning us to grow our DCF per share. On customer credit, we continue our extreme focus throughout our commercial and corporate organizations.

In the past quarter, credit defaults amounted to about 0.3% of budgeted revenue annualized, and most of that is associated with the Peabody bankruptcy that took place in the first two weeks of the quarter. Without that we would be well under 0.1%. And again, putting our situation in perspective, we're a broadly diversified mid-stream company.

We’ve got a strong and diversified customer base, which includes integrated energy majors, utilities and end-users. So the credit picture is stabilizing.

Now for some of the segment highlights and trends, overall when I compare it to a year-over-year basis the segment earnings before DD&A and certain items was down 31 million or 2% from Q2 of 2015 to Q2 of ’16. CO2 so 31 million, CO2 by itself is down 59 million, due to lower prices primarily, and lower production.

Even though CO2 is making plans due to some price improvements and good performance on the cost saving as well. Compared to the same quarter last year, gas is down 1%, while terminals and products up 4% and 8% respectively, so broad themes on our year-over-year performance.

Number one, we continue to see strong demand for natural gas across our network. Transport volumes are up 5% year-over-year, we're getting good terms on storage, transportation and sales renewals in our business.

Power burn on our pipes is up 8% year-over-year and recall the power burn was up 16% from Q2 of ’14 to ’15, so there is strong compounding work coming from the power sector.

For the first time ever gas is making up a larger share of the fuel for power generation and coal, that's been true year-to-date for 2016, and if I close in 2015 in the last -- most recent quarter is through ’16, 35% of generation came from gas, versus 27% from coal. Gas exports are up on our respected fields.

Exports to Mexico have grown to 3.3 Bcf a day, and three quarters of that volume moved on Kinder Morgan sites.

We continue to believe and we're seeing that the need for natural gas transportation and storage service is growing as the demand in the power generation sector and industrial sectors continues to grow, along with export demand from Mexico in LNG.

The products pipelines were getting the benefit year-over-year of higher volumes on KMCC and Quotient and the start-up in the second splitter units in Houston Ship Channel.

In terminals, we're seeing the benefit of new liquids capacity coming online as number of liquids makes up a little better than three quarters of our segments earnings before DD&A in this business. And we're also seeing increased utilization in on-site, so more capacity online and higher overall utilization of that capacity.

The second quarter was a record setting quarter for throughput on our liquids terminals. On the bulk side, while coal volumes are down year-over-year other coal volumes are partially offsetting that decline, particularly in Petcos and Metals.

We also renewed our Steel handing arrangement with Deepwater for 10 years with some value enhancements in that new deal. Overall, the bulk part of the business is higher year-over-year change to be explained by the coal banks.

The negative affecting the business on a year-over-year are of course lower commodity prices, which affect us directly and the enhance oil recovery part of CO2 and indirectly in our gathered volumes of gas and crude condensates.

And even with oil prices and gas prices that are lower year-over-year by 18% and 26% respectively, we're showing durable performance from our portfolio. Lastly, an update on our Trans Mountain Expansion, this continues to be a two-step forward, one-step back development.

I’ll start with the fundamentals, while we consistently hear from our producer customers in Canada, is that they’re counting on this project to get built. Putting the recent fires aside in Alberta, production continues to grow, and takeaway capacity projects continue to be behind the demand.

Oil prices have hurt Alberta for sure, so from the perspective of our expansion the supply and demand fundamentals for takeaway capacity are good.

For the best of the federal review process as Rich mentioned, we have our NEB recommendation finding the project to be in the public interest and the federal government’s undertaking its further consultation process with the objective of final decision in the sum of this year.

We’ve made great progress with communities along the route have, have agreements to support from a majority of the most directly affected first nation today. We are actively engaged with the BC government on the satisfaction of their five conditions and we are making very good progress there.

We’re going to be actively working with contractors over the summer on the always challenging work on cost and final step for the project. Finally before turning over to Kim for the financials, I’m going to point out, as you probably noticed, the release is in a slightly different format than usual.

What we’re doing, is showing GAAP measures with equal or greater prominent further recent SEC guidance in public companies. As always, we’ll continue to show you all the numbers including the non-GAAP measures that we did. In our management of business, but this is a format, we’ll show in times going forward. With that, I’ll turn it over to Kim..

Okay, thanks, Steve. Let me start by reiterating three overall financial points as Rich mentioned today is that we believe you should take away from this call. Number one as Rich said, our full year guidance has not changed from the updated guidance to -- we gave you last quarter.

We continue expect that EBITDA will be about 3% below budget and DCF would be approximately 4% below budget. Being consistent with the guidance we gave you last quarter, this guidance does not include the impact of the SNG JV, which we anticipate will close in the late third or early fourth quarter.

Secondly, we expect in the year at 5.3 times debt-to-EBITDA, which is down from our budget guidance and the guidance we gave you last quarter, largely as a result of our balance sheet improvement efforts. When you annualize the EBITDA impact from the SNG transaction, we expect that the full year impact would be slightly higher than the 5.3 times.

And third, our debt-to-EBITDA target still around five times and once we’ve reached that level we will decide how to return value to shareholders, but we’re not committing to specific, not at this time. On our dividend today, we’re declared a dividend of $12.5 per share consistent with our budget and the guidance we gave you in December of last year.

Looking at our GAAP income statement, we will see that revenues are down significantly. As I say many quarters, we do not believe that revenue or the changes in revenues are necessarily good predictors of our performance.

We have some businesses where revenues and expenses fluctuate with commodity prices, but margin generally does not, which is why you also see a large change in cost of sales during the quarter. In addition, our GAAP numbers could be impacted by non-cash non-recurring accounting entries or what we call certain items.

So if you turn to the second page of numbers, which shows our DCF for the quarter and year-to-date, I believe you’ll get a better picture of our performance. We generated total DCF for the quarter of 1.05 billion versus 1.095 billion for the comparable period in 2015. Therefore, total DCF was down about 45 million or 4%.

The segments were down approximately 31 million or 2% with the 59 million decrease in CO2 offsetting increases in terminals and products. The 31 million decrease in the segment was partially offset by a $23 million decrease in G&A and interest expense.

In net-out the $39 million increase in our preferred stock dividends you get a DCF earnings of 47 million versus the 45 million that we show on the page. There are a bunch of other moving parts, so that gives you the main one. DCF per share was $0.47 in the quarter versus $0.50 for the second quarter of last year or down $0.03.

With about $0.02 associated with the DCF earnings that I just walked you through and about a $0.01 due to the additional shares that we issued during 2015 to finance our growth projects and maintain our balance sheet.

Therefore, despite approximately 20% decline in commodity prices versus the second quarter of last year, our performance was down approximately 4%. We believe these results demonstrate the resiliency of our cash flows generated by a large diversified platform, primarily fee-based assets.

Certain items in the quarter were relatively small, income of approximately $8 million, but let me describe a couple of them that you wouldn't have seen before so you make sure you know what they are.

We had a contract early termination revenue which is $39 million of income which is associated with a customer buying out its sourced contracts on one of our Texas intrastate storage fields.

We also had a 21 million in legal and environmental reserves and that was primarily related to settlement of our over 10 year litigation matter with the City of San Diego. Now let me give you a little bit more granularity on our expected performance for the full year versus our budget.

We expect natural gas pipelines to come in approximately 2% below its budget, primarily as a result of the lower volumes in our midstream groups and 4.5 months in service delay on our EEC, SNG pipeline expansion. As a result of the delay in receiving our FERC certificate.

CO2 is expected to end the year on its budget and essentially here what's happening is we've some price help and cost savings that are offsetting a little bit lower oil and CO2 volumes that we budgeted. We currently expect terminals to end the year about 4% below its budget, primarily due to the impact of the coal bankruptcy.

We expect products to end the year approximately 5% below its budget, due to lower crude and condensate volumes on KMCC, Double H and Double Eagle, lower rates on our SFPP pipeline, and the sale of our corporate pipeline. Right now, we are projecting KMC to be essentially on budget.

On the expense side interest, cash taxes, G&A and sustaining CapEx, on a combined basis are expected to come in positive versus budget or said another way generate a favorable variance, primarily as a result of lower interest. And with that I will move to the balance sheet.

On the balance sheet, we ended the quarter with $41.3 million in debt that is an increase in debt of about 97 million since the end of last year and it's a decrease in debt versus where we ended the first quarter of about $234 million. So, let me reconcile that for you. DCF in the quarter as I mentioned a moment ago was 1.05 billion.

We spent about a little under 870 million on expansion CapEx and contributions to equity investments. We distributed or paid dividends of about 279 million. We received proceeds from asset divestitures and JVs of about 220 million and then working capital and other items was a source of cash of about 110 million.

On year-to-date, we generated $2.28 billion in distributable cash flow. We spent about 1.88 on expansion capital, on acquisitions and on contributions to equity investments with the only significant acquisition being the acquisition of the BP Terminal in the first quarter.

We paid dividends of $558 million and we have proceeds from asset divestitures and JVs of 220 million and then we had working capital used about 160 million adjusted to the $97 million increase in debt year-to-date.

We ended the quarter at about 5.6 times debt-to-EBITDA which is consistent where we ended last year and consistent where we ended the first quarter. And as we've mentioned a couple of times on the call, we expect to end the year at 5.3 times debt-to-EBITDA. So with that, I’ll turn it back to Rich..

Okay. And Laura if you'll open the lines we will take any questions that may arise..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Kristina Kazarian from Deutsche Bank. Your line is now open..

So, I know you guys did this last week so sorry for doing it again, but I have been getting a lot of questions. If you can -- can you guys just help me recap the profile of asset that would be up for JVing, so I know where we talked about Elba, any thoughts on timeframe to that and then TMX is the largest standalone project in the backlog.

So, would you be up for doing anything in any way on this one?.

Yes, so we've not been talking about specific JVs other than what we have put kind of in as a placeholder right when we announced our plans for the year. And there are competitive reasons for doing that. We want to -- we don't want to be hold into anyone particular transaction.

We've got some commercial considerations and competitive considerations around counterparties that we're working with there. So we're not identifying for you the whole list of things that we would be considering.

But I think it's safe to say that we would look at and evaluate and we could make it work just about anything on our backlog that is separable that we think we can extract good value for and that we can get promoted on and to start a return on it. It will have the kind of the full list.

Now a lot of things that are in our backlog are things that are components of our existing network, our existing asset base and so those are a lot harder. The other thing I would point out is, and this was part of our strategy in maintaining some flexibility on what we would work on and what we would get done.

We've gotten so far already this year -- we've gotten to a point where we brought our debt-to-EBITDA metrics down to 5.3 which is better than where we expected to end the year.

So, I know that's not definitive answer on here is the list of things that we look at doing that's the kind of characteristics of things that we look at doing and we've made great progress on it..

That's helpful.

On TMX, can you remind me what the next step would be if we get the order of council in December?.

So there is another process going on which is the BC environmental assessment or the environmental certificate I guess you would call it, which we believe will be close to time to when the federal decision comes out may be it lags by a month or so, that's another requirement.

And again we're working through the BC condition five process, which is the premier statement of conditions that she would like to see in order to sanction a project, right, and we're making good process on those negotiations..

And then last one for me it's an asset level one, can you talk a little bit more about the gathered volume number, was this kind of in line with what guys were thinking post-1Q especially in Eagle Ford and then the same thing on that increase in power demand number being up so much?.

Yes, I would say first on the gathered volumes, we made some good progress during this quarter and maybe a little bit during the last quarter in terms of timing and with signed picture stuff I think 6 with existing shippers at 7 with the new shipper were kind of incentive agreements to try to bring volumes to our system above the contract minimum.

So we lost some volumes on our Eagle Ford system that we're now getting back by entering into these arrangements. So it's probably a little bit worse than what we would have been shooting or hooping for but I think we've taken the right steps during the quarter to get some volumes and send it back on the system. And so I look for improvements there..

Perfect well thank you….

Yes. And then on power, we were watching to kind of see how power generation would play out. I think I'll say and Tom Martin is here too a little surprised to the upside on the year-over-year improvement when you think about how big of a link we had last year.

Now if you look at the year-to-date number it is not quite as strong because we had that weak winter and so Q1 was actually down a bit. But if you look down on a Q2-to-Q2 basis after having a very robust growth from ’14 to ’15, we saw growth on top of that of 8% and here I am just talking about our system.

So 8% on top of that 16% that we saw before which I think is very strong and I think bodes well. We had another data point there as we had five of our six biggest days for power generation on the SNG system happened in the last 45 days, five of the six biggest..

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

I just wanted to clarify I guess your response to Kristina's question about new JVing your assets, so if I want to under the backlog correctly if there is a project that's basically a brownfield expansion to an existing asset that makes it more difficult to pull off the JV but not impossible, but more likely to happen on something that is more discrete, is that a fair way to think about it?.

That is a good way to think about it..

And then if I remember your call from last week, you've sort of indicated that BS and GS that steel affect that you took an operating asset and then entered into a JV that seemed more of a one-off type of thing and not to really think about that on a go forward basis, does that imply to your CO2 business or is that one segment that you would actually consider JVing or outright telling?.

Yes as we said last week, I mean in general it's not going to make a lot sense for us in general to be selling interest and I’ve been running assets that tends to be an expensive way to raise capital.

It was, I would characterize that it is a somewhat unique opportunity in the SNG case, because what we had there is our largest customer, a great power market in the Southeast U.S.

and some specifically identified and agreed to opportunities that we can jointly pursue in this JV that again somewhat unusual for such a transaction would actually make the sale of an interest in existing asset accretive in the medium-term. So I think that the fairly unique situation.

We had as Kim mentioned in some of her updates on the cash numbers proceeds from other asset sales that we did and again they are, I think we’ve had few others they are somewhat exceptional and it’s either a case where, it’s really a case where, the customer on the asset or a third-party has a much higher value or places a higher strategic value on the underlying assets.

Parkway was an example there were some others smaller examples during the quarter. We sold the small Transmix facility, which we were essentially just doing spot business through and really not making much of anything on it, we had a third-party who is interested in during more with that asset.

And so again I think those are exceptional cases, but where we see them, we go get them..

Okay. If I can follow-up with some financial related questions, I guess first of all the credit market has been a lot more generous on issuers lately versus a couple of months ago.

Had there if any thoughts to pre-funding some of the upcoming maturities? And I was wondering if you can also walk us through the delta on maintenance CapEx kind of seems like.

Is it seasonal or is this part of your efforts to continue taking some cost out of this structure?.

Do you want to take the first one?.

Sure. On the debt side, you’re right. I mean, we could issue tidier bonds right now it’s up 4%, so very attractive market. But we do not have any need to excess to capital markets during 2016. We will continue to evaluate whether it might make economic sense to pre-fund 2017.

Obviously, we’re going to be, but we expect later in the year, we’ll be getting proceeds from the SNG transaction and say yes we take that into account as well. On the CapEx, it is sustaining CapEx so we’re going to coming we think probably about within 1% of our budget on sustaining CapEx.

And so it is just, it’s really we are running at a positive variance year-to-date versus our budget, but that’s almost entirely timing..

Yes. So it is timing of the work, we still plan to do the work. We are getting some cost savings, but we also plan to get the cost savings. So it’s relatively modest beyond what we budgeted for. And as always the work that we’ve identified that we’re doing for compliance and safety, we are focused on getting done and will get done in the year..

Okay. And one final question if I may, it may be an offline question. The CO2 business, how much of a benefit are you getting from the hedges this year.

Is that something that you’re able to quantify relative to your budgeted guidance?.

It’s about $265 million..

Perfect. Thank you very much guys..

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

Yes. Our next question is from Brandon Blossman from Tudor, Pickering, Holt & Company. Your line is now open..

Just one real quick I will ask a very similar question, it is probably a different way.

Steve you've made impressive progress both on the capital high grading side and the JV side, it obviously takes pressure off to get anything else done in the very near-term, how would you characterize kind of discussions on either point there, currently and what's your expectations maybe over the next 12 months?.

Well Brand I think you're right, I mean it does, it puts us in the position of being more patient and selective as we look at any other opportunities really for the balance of the year.

So, again that's why we're very pleased with the progress that we've made here in the first half of the year and the fact that it does put us in a position to be more selective about what we want to do going from here..

That said we're not sitting on our hands, so we'll be looking at all opportunities and again it's our intent to get back as quickly as we can judiciously done to the point where we can return more money to our shareholders, that's our intent, we've been saying that since we made our decision on the dividend last December and I'm just enormously proud the job that Steve and the whole team have done in getting us this far and there's more to come and we're working on it..

And then just a couple of quick ones, with spreads was that still 100% your project or is that 50-50 now?.

No, it's a 100%..

Yes, it's a 100% us..

And then coal volumes, is that you said I think Kim you said you are currently slightly under budget on volumes, is that because of the CapEx reduction relative to plan or is that performance on the fields?.

I think it's primarily performance on the fields, and just to hear our sea of speakers and we can comment a little bit more..

Yes, I think it's right..

Yes it's performance, now we are learning more as we go here and we're sharpening our pencils on the programs going forward, but we had less performance so we expected.

If you look at the year-over-year, a big part of the year-over-year impact as we had some really what was a I think a record setting in-field program at SACROC, that we saw the benefit of in really from Q4 of '14 through the first half or and so exactly I think it's a 50..

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

Just a follow-up on that last question so at this level of 220 million or so the investment in your oil business, what's your view of what ongoing decline rate we should expect going forward on your oil volumes?.

Yes not necessarily expecting an ongoing decline rate, what we do in this business is we're looking at deploying capital that gives us an attractive return on the incremental barrels that we are producing that is associated with that capital spend and so that's kind of how we look at each of our investments here.

We don't aim to necessarily look for higher returns, keep production flat or grow it slightly we really make those decisions on each individual capital and investment in the development programs that we spend money on a CO2..

Okay, thanks.

And then just had a follow-up, can you just remind me if you have all the approvals that you need from Shells in order to start construction on Elba in the third quarter?.

We have our contract with Shell. We have a FERC 7C certificate that we received in June, June 1 and what we're waiting on to proceed there is we've got to get through the rehearing process and rehearings were filed I guess 30 days after we got our certificate.

So, there is the hearing process that we're going through now that should take 60 days from the date of that filing and we still need that, we've got to get through that process with all the smaller permits we're waiting on….

And those are permitting..

Yes those are eminent..

Yes..

Okay.

And as far as from Shell’s perspective they are aligned with the timing with you guys?.

I don't know what you mean by aligned with the timing, but it is a requirement for this project that we get a final FERC order and that includes not just the 7C but also the rehearing and so….

Right..

Yes..

Okay, thanks..

Thank you. Our next question is from Brian Gamble from Simmons. Your line is now open..

Just a couple of quick follow-ups, Steve you talked about the incentives agreement that you’d able to reach on the gathered volume side, great to see those volumes coming back to the system.

Can you give any more color around I guess what types of agreements those are may be not give the exact rates but may be talk about additional opportunities on top of what you have already captured as far as the magnitude of potential volumes as to may come back in the back half of the year?.

Go ahead..

Yes, you go first..

Yes, I mean the, I think in a broad brush we've got deficiency to be that of our employing in many of these agreements and we're not meeting the volumes associated with that and so anything that we can do and tie incremental volumes incrementally.

And get a fee that is downstream we get additional value it make sense to work around that deficiency, so I think that's sort of the general construct I am getting in doing more..

Yes, I think really that the -- you would rather get the volumes than get paid the deficiency fees and so we're working with our customers the volume brings incremental value than just getting paid the deficiency fees and we will work on the deal and have incremental volume and that is what we think except for both the producing [indiscernible]..

Is that volume is moving?.

Go ahead..

I am sorry was that volume is moving back to your systems that had been going different directions or you actually been incentivizing producers to produce volume that they may have chosen not to based on just making the deficiency….

I would just probably bring in volume back to our system that they have been going out to other places..

Okay, great.

And then on the power burn side great to see the Southeast region contributing such huge days to that piece of that business, has there been any change in that recently you mentioned five or six biggest days along 45 days we've also seen a pretty healthy move in the gas price over that time period? Were those five or six days particularly in July or was that more of a June event that may be we're starting to see a little bit of softness as the gas price goes up and any color on the trend there would be great?.

It was June and July..

[Indiscernible].

Yes so I think split fairly evenly..

Yes..

I think it was certainly not a fully June phenomena..

Yes so I mean I think generally I think we believe that we're going to be really strong following even at these burn gas prices through the third quarter I think once we get latter part of September and we're still pushing $3 or upper $2 there maybe some switching back.

But we're not seeing any indication of that it is just the kind of weather we're seeing right now and expect to see through all that..

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

Just two quick one for me the first with regards to your comments around enhancing shareholder value, I am just curious and I recognize it is kind of cynical, but I am just curious have the impact for the conversion of the preferreds to common shares might influence your preference on which measure of equity value enhance that you choose first meaning if it is a share repurchase to manage some of that incremental dilution or maybe it's a bit more of a balanced approach?.

Well, I think as we said and Kim has been very clear on when we get that to around 5 which is our target then I think we'll look at what is the most opportune expedient way of returning value to our shareholders and we're not trying to judge in advance. We won't do it just to avoid the potential dilution of the conversion of the spread.

We'll look at it whether it makes sense to buyback there is our increase with this. Again that size we're running at a $2 Bcf rate and we're pleased that the stock is rallied here almost the announcement on SNG in the $22 range but that's still about a 9% yield on Bcf. So we look at that and still amazed that it's that high..

Steve one quick on for you just with regard to the Northeast, the expectation there possibly regarding TGP working with customers possibly expanding that since and beyond what is stated and scaling it up with the developments that have transpired since the close of Q1, has anything changed there?.

No we continue to talk to customers but there is nothing definitive there and they -- we're -- the need for NAV in the Northeast is real, it's present and we still think there is, there are capacity needs in that we will talk to our customers and continue to work with them on finding something that make sense, not at the same scale as NAV but perhaps something else.

In the main, we're expanding TGP like mad.

I mean we are bringing gas down from the Marcellus and Utica down to the new market area if you of the South the Gulf Coast where LNG exports ultimately go into Mexico as well and serving demand down here in Texas as well as power plant laterals of weather project so we're actively investing in TGP but no update really on Northeast utility customer contracts..

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

Just wanted to talk about Canada first and given the British Columbia, isn’t necessarily known to be the easiest to do business? Just wondering, if you had any reaction to a bit more thought on reaction as far as what they said, there recently with TMX expansion.

And has this enhanced your ability to potentially, kind of buying JV partners here, because it seems like this could be an ideal project to bring in a partner for?.

Yes. So first on BC as I said I think Ian and the team has been making very good progress there. And I assume you’re referring to the energy minister Benet’s comment here recently reported in Bloomberg.

We think that the environment overall, I would say is improving and we are making progress and getting matters worked out with BC, but we’re not there yet still working on it.

I think that again hypothetically from a JV perspective I mean the more of these kinds of things that we’re able to resolve and get behind us, the more value, there is to a potential investor, but again we’re not, we’ve got nothing active going on, on the project, it’s 100% ours right now.

But I think whether it’s 100% ours or ultimately whether there is a partner getting these things taken care of from a regulatory and political standpoint is very helpful..

Okay, great. Thanks for that. And then just as far as the 5.3 times leverage that you guys are targeting for year-end right now.

Does that -- how much incremental asset sales or JVs does that bake in at this point?.

Nothing significant..

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

So coming back to the 6.5 times capital-to-EBITDA multiple that you’ve put in the press release, which is now down from the 7.5 times at the Analyst Day.

Can you just walk us through the details of how you got from 7.5 to 6.5, I’m assuming it is taking that out of backlog, but what are the other ways is that you are bringing that multiple down on invested capital?.

That is really kind of all the items that I listed out there. We’ve had some contracts restructured, we’ve had some projects and that being the largest one, largest single one that had below average returns compared to the overall backlog that have come out.

We’ve also looked for ways to make on all of our projects that there are scope improvements that we can make, cost reductions that we can take on occasionally. Pushing capital out so closer in-time when the project is coming in serve all of those things helped improve the returns and the multiple on the existing project base..

Okay.

And now with the new project bids, can you just remind us how much this projects actually have take or pay type components or how much of them depend on volumes they were outside of your control, and beginnings in terminals or other places?.

Yes. The majority are going to be under contracts with customers and let’s see I mean on a percentage basis I guess it is actually we do is exclude the CO2 portion of it and generally everything else is going to be under contract..

Okay. Great, and so then just stepping back here your earning 6.5 times multiple returns, which is certainly very good returns, at what point do you say it is enough on asset sales, JVs, et cetera.

This backlog is too good we actually don't want to may be give this up?.

Yes well, look that the backlog and the projects that we're going to bringing on are part of our effort to improve our DCF per share and so we're going to keep -- but that doesn't mean that we will keep trying to find ways to optimize the scope and do other things that are going to boost returns.

Going forward we've said fairly high, look we're in a at self funding world right now and so we'll continue to look for incremental project opportunities but we've raised our return criteria to something again that's all -- it always varies on any individual project depending on the risks and rewards but we kind of used as a little sum of 15% unlevered after tax return.

So, we continue to look for those projects and have authorized several along the way through the year, but we'll look to boost returns on what we have but -- and we'll raise our return thresholds as we look at incremental capital investments..

And then if I could just sneak one more on Trans Mountain I guess any update on your views on the cost there to meet the 107 conditions probably you have some time to go through there and just remind us if you have any ability to -- if there was cost more higher to pass this cost through to customers?.

We're working on the cost right now and working with our contractors right now and kind of will be over the -- really over the course of the summer and what contractors always want more than we want pay them and we're going to be pushing back hard on that process over the course of the summer, to try to keep costs down and under control.

Once we arrive at a cost that we turn over to our shippers and our final estimate which will be sometime early next year or maybe later this and maybe late this year.

Okay then if we have flow through protection on certain identified uncontrollable costs and that includes things that's once we've set the price right, once the cost has been set and that includes things like First Nation’s costs, steel costs, one of the more complex spreads through the mountain and then the last 40 miles, 40 kilometers into lower mainland..

Thank you. Our next question is from Faisel Khan from Citigroup. Your line is now open..

A few questions, first I just want to go back to something your answers around the gathered volumes and I am a little bit confused so, if you climb from roughly 3.5 this year the day and gather volumes down to almost three a day and I think Steve what you're saying is that's basically it a lot of that was sort of volumes above the RMPC and now you are saying that is stabilized going forward?.

Well what happens in the basin will drive a lot of that, right, I mean we're starting to see some people come back to the Eagle Ford but you not only have to come back you have to bring a lot of rigs back in order to see that flatten out and then start to increase and frankly I don't think the basin is at that point yet and so most of what we've been focusing on is where we lost some volumes to third parties we're trying to accept those to come back to the system rather just collecting the deficiency charges from those customers.

And as I said I think we've made some good progress over the course of the quarter in doing that. But, so long as the overall basin is declining what we're doing is fighting off decline and trying to stay above that decline rate if you will, but I don't know you don't -- it depends on whether the basic decline starts to slow I think and level out.

Now, I will point out too that we haven't talked about Highland we actually had year-over-year and over budget improvement on our Highland gathering assets in North Dakota a lot of that was due to also restructuring of contracts as primarily migrating them from a percent of proceeds to fee based which gives us both greater stability but also happen to have a beneficial impact on this year's earnings.

So, we talked a lot about Eagle Ford in the Haynesville we've done an arrangement to try to incent a current customer to do some drilling and there what we've done is we've divided if you will the contract between what's already under contract to us and new or incremental wells and providing discounts there to try to incent some drilling.

But again the overall gathering picture is primarily driven by what the overall basin picture is..

Okay.

But I mean to go from 3.5 to under 3 in two quarters is pretty extreme, and is that level of decline going to continue into end of the year?.

Now I think we may see some decline but it won't be at that rate..

Okay.

Got it, and then the Eagle Ford volumes you talked about that's just on the liquid side the 3 going from 3.44 down to 3.04 that's what you're talking about there or is it another mix of gasoline you're talking about within the gathered volumes sets?.

Those are significant gas gathered volumes in the Eagle Ford as well from our Eagle Ford gathering system and the assets that we acquired from Copano and those 3 knocked us into our overall gas gathering volumes that we report on the numbers page..

Okay. And that make sense on the G&P side then on the CO2 production volumes.

I just want to go back to a question that was asked before, so a 15% decline in volumes here year-over-year that's not the natural here the feel of that grand number correctly I mean I saw that the CO2 does not stay on a lot of capital and in fact locking gates volumes might decline by about may be mid single-digits based on how much your 2 year checked in this that 15% seems like a lot?.

Yes it's just, yes -- no it's not a natural decline, as Steve said earlier we had a record quarter and half year in ’15 based on a very successful in-field program the candidates is not as prolific in the area at the moment so that's really the driver period-to-period it's the success of that particular in-field project..

Okay.

So what is the natural decline that fuels from here on out that you could give me a best guesstimate?.

Yes, it's probably more along the 6% to 9% in on the area [indiscernible]..

Okay, understood.

The last question for me, just on the asset sale program there was some trade publication news that you were in the market to sell the Jones Act tanker business is that still an asset that is on the market or and have you pulled back that asset from the market?.

And again Faisel we're not really talking about specific processes or assets for the reasons I said earlier..

So one more I will make it quick, the drive to get the current capital to shareholders as quickly as possible, I am just wondering is -- so you have a lot of -- you've announced about an asset sales already I am just wondering do you risk sort of going racing too quickly to return capital back to shareholders and maybe not retaining assets that may have sort of better value over the longer term.

So I am just trying to understand sort of that balance between of asset sales and returning capital back to shareholders over a certain time period?.

I think it is a balancing process and we're certainly not going to sell anything that doesn't make sense strategically for us and that's why for the most part and Steve as explained I think very clearly the thought behind the joint venture with Southern Company on SNG but beyond that our effort has been concentrated on new projects where we could bring something in who would reward us for the efforts we have made on those projects thus and participate heads up with us on a going forward.

So I think we're trying to balance it very carefully and we're not going to rush into anything that doesn't make sense strategically we're obviously in this for the very long-tern..

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

I got three questions here.

The first pretty quick on the fall to 6.5 times what I think was guides 6.7 times CapEx do you saw on the remaining non-CO2 growth CapEx, is that mostly on the efficiencies and that gas pipeline project restructuring and were monetized projects complete a Mongolia tanker at higher multiples?.

I think Mongolia would have been in there all along so really it's the contract restructuring, it's the Utopia JV and those would probably the two main contributors to it, but also we have as I said we have looked for ways to touch stand or reduce scope where we had the opportunity to do so without and enhance return as a result, those are probably the two biggest single components..

And kind of a bigger picture, I know the balance sheet repair and having a flexibility to return money to shareholders is foremost in your mind, but of course if you had to make a choice and you had unlimited ability to reinvest at 6.5 times EBITDA certainly that would be preferable to returning money to shareholders.

Currently excluding CO2 and CO2 I think you have about $10 billion of proportional spend now for ’16 to 2020 and over half of that was Trans Mountain, how would handicap prospects for the fee based outstanding growth CapEx inventory to materially fill in and expand over the next couple of years?.

Well again as we have said trying to balancing things there are 2 thing we're trying to accomplish here, one is we want to get our debt-to-EBITDA down into the City of five times okay.

The other thing we want to do is for all the DCF per share and that involves investing in project as we’ve described and getting good returns for the capital that we do deploy. And we’re doing this in a context of being self funding.

So we are trying to make sure that we are dedicating our capital that we have to the best returns we can get and not be in a position where we have to excess the capital market, where we have to excess the capital market. And so those are really the things that we are balancing.

We remain focused on getting the balance sheet in order and in improving our DCF per share. And we believe following that course will allow us to be in a position to return cash to shareholders.

I think if you look at what our opportunities and it remains to be seen what the total investment opportunity is going to be out there, but I think there is a very reasonable case right a reasonable scenario where we’re in a situation where we’re generating significantly more cash, particularly if these projects come online or cash than we’re investing and when we’re in that position, we’re going to be also in a position to either as we said multiple times either further delever the balance sheet or return value to shareholders in the form of buybacks or increase the dividends.

And as we get closer in time to that we’ll be evaluating which one of those approaches is the best way for maximizing, to maximize shareholder value..

Understood, I just, what I’m trying to get at is that there is a much higher value proposition potential. And that is if you get close to five times net debt-to-EBITDA towards the end of next year and we have this flexibility we still can issue 10 year debt, and it’s up 4%.

If you could fund half the cost of all of your growth CapEx at 6.5 times with cheap debt, you would have enormous amount of free cash flow to both fund growth CapEx and return to shareholders.

And I guess I’m trying to get a sense of, if you think that having additional projects in line would be attractive than what you currently have, I mean there was a point you had over 20 billion of inventory.

Do you think that there is prospect for the next two-three years to start to charge that?.

Yes look that’s a possibility and that is absolutely something we will look at. But again the place we’re trying to maintain ourselves right now is not to have the excess the capital market, it doesn’t mean that on the right terms and conditions we wouldn’t..

Okay. Last question CO2, I think for the entire segment that was originally budget 1.8 billion of growth CapEx over the five year plan. I think the forwards strips in ’16, ’17 are above your plan assumptions the longer term strips are still stubbornly low.

Any reason to think about particularly what some of the volumes staying less than originally anticipated any reason to think about that spend over the five years coming in?.

Five years coming in....

They are all like plus or either 1.8..

As a matter of fact we’re up slightly from the 1.8 in the first Q. At the current strip, we have, the 1.8 still fits and works at the current strip..

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

Just a couple a quick follow-ups from me I guess Kim starting with CO2 for a moment, you've been willing to give us some updates in prior call on hedge book and activity I'm just wondering if there's been any update on the hedge positions if so if you could sort of update us as to where you stand?.

As we've said on the last call we continue to lay on as if in a programmatic fashion and not just stay in line with our hedge policy but for '17 or 51% hedge is $68, 36% in '18, $73, 24% in ’19 at $60, about 6% in '20, that's $49..

And then with regards, I think you had said earlier on the call that there were $175 million of sort of arranged sales and the products difference and I was curious if you had a press release out whether about the product I was curious if you could quantify how much of it was that?.

No we can't due to confidentiality commitments, cannot talk about the specifics but we will try to give you some -- I've got a little bit of guidance here, if you aggregate all those things that we sold that there is enough cheesing out part way okay but it's just aggregate the other, it was a terminal asset that was sold and of the 3 total assets sold $172 million in proceeds and the EBITDA multiple was about 13.5 times..

I also had a question just with regard to Trans Mountain, if that project is one way goal and ago and all was said and done could you I don't know if you know at this point or could help us think about how the new cadence spend would go on that asset particularly in 2017 and '18 or is it mostly concentrated in the final year?.

Kim?.

It's concentrated in '18 and '19..

In '19, we won't start actual pipe construction until late summer of '17, so, I would say that you think about '18 and '19 that's the end of cadence when projects will complete with a half year in '17 is the way things run..

And then I think just final question from me, I don't mean to be a dead horse but I want to revisit sort of the balancing act that you spoke about with spiral and then Craig’s efforts, or comments around sort of the deleveraging efforts versus capital deployment opportunities.

Steve recognize and if you don't you need access to capital markets but I'm just wondering like at what point, what are the conditions under which you would like if the -- I get that the effort around JVing on in flight projects is seemingly the most attractive thing, but if the party can bring something to that other than just capital.

We are obviously seeing asset sales but it's kind of tricky when you're selling underlying cash flow and utilizing some of the NOL balance.

So, I'm just curious is like to go around delevering, where and when and if equity issuance would play into that?.

Well I think at this price level we don't want to issue equity and so look I think right now we're going to live within our cash flow and I think that as we look out in time we want to do projects. So, we want to do projects that have good returns on them and so if they have good returns and we think that will be value creating to our investors.

And so if we can do projects at 6.5 times EBITDA then that is going to be priority, but as we look out in time and we look at the backlog that we have and we look at the potential opportunities that there may be, we see that there is probably going to be cash flow in excess of the capital project once the balance sheet is repaired.

And so that's why we're saying once the balance sheet repairs then at that point in time we will be in the position to return value to shareholders through share repurchases or dividends because we think there will be some projects, don't get me wrong, but we just think that the cash flow that we will have will exceed that amount of projects..

Thank you. Our last question at this time is from John Edwards from Credit Suisse. Your line is now open..

Well it is just a couple of just real quick ones for me just, do you have the breakout of the subsectors for the backlog if you could give that to us now?.

Yes, so natural gas is still about 30% of the backlog in the current, so this is the 13.5 that we're talking about….

Yes exactly..

Yes, gas is 30%, products after the JV is sitting at 2%, terminal is at 15%, CO2 is 14% and then KM Canada carrying a project that's a $5.4 billion is 40%..

Okay.

And then just what has changed from the -- you said it came down about 1 billion was it mostly coming out of natural gas?.

Yes it came down from 14.1 to 13.5 and so 600 million and there were projects that rolled into service. We also in the previous backlog did not have a Utopia JV assumption but the JV of Utopia had an impact on that it was part of the decline.

And then as I mentioned we have restructured a contract with a customer actually boosted the return but that's also reduced the capital associated with that particular project and those are the three biggest things and then there were some fairly modest project additions that went the other way..

Okay.

And then just my only other one is just can you quantify the amount of deficiency payments you are receiving?.

I don't have that number. At that is not something we track separately so no..

All right, that's it from me thanks..

At this time speakers I show no further questions in queue..

Okay. Well, thank you very much everybody. Have a good evening and thanks for dialing in for this..

That concludes today's conference. Thank you for participating. You may now disconnect..