Kinder Morgan (KMI) Q4 2018 Earnings Conference Call Transcript

Kinder Morgan (KMI -0.32%)
Q4 2018 Earnings Conference Call
Jan. 16, 2019 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Welcome to the quarterly earnings conference call. [Operator instructions] Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mr.

Rich Kinder, executive chairman of Kinder Morgan. Sir, you may begin.

Rich Kinder -- Executive Chairman

OK. Thank you, Kim. And before we begin, as usual, I'd like to remind you that today's earnings release is about KMI and KML, and this call includes forward-looking and financial outlook statements within the meaning of the Private Securities Litigation Reform Act of 1995, the Securities Exchange Act of 1934 and applicable Canadian provincial and territorial securities laws, as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures on forward-looking and financial outlook statements and use of non-GAAP financial measures set forth at the end of KMI's and KML's earnings releases and to review our latest filings with the SEC and Canadian provincial and territorial securities commissions for a list of important material assumptions, expectations and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking and financial outlook statements.

Before turning the call over to Steve and the team, let me make a few quick remarks. As you can see from our excellent 2018 results and our 2019 budget overview already released, the assets at KMI are generating strong and growing cash flow. This is obviously a very good thing, but the question is how to deploy that cash in the most effective way to benefit our shareholders. On that question, we get lots of suggestions from analysts and investors.

As we have said so frequently, we can use the cash for different purposes: to pay it out as dividends, to buy back shares, to pay down debt and to reinvest in capital projects. Over the last three years, we have used our cash for all of those purposes in varying degrees. We have paid off over $8 billion of debt and reduced our debt-to-EBITDA ratio to our targeted 4.5 level and had our credit rating upgraded by both S&P and Moody's. We've raised the dividend from $0.50 in 2017 to $0.80 in 2018 and reiterated our intention to increase it to $1 in 2019 and to $1.25 in 2020.

We have bought back over $500 million worth of shares, and we have funded our growth capital without needing to access external sources. Now in my view, that's a pretty positive story. You can quibble about how the money gets allocated, but I believe investors should appreciate the overall flexibility that the strong cash flow provides. And we will continue to use our cash flow in a disciplined way that most benefits our shareholders.

As we have said so many times, the management and board of KMI are significant shareholders, and our interest are pari passu with the rest of the shareholder base. Steve?

Steve Kean -- Chief Executive Officer

Yes. Thanks, Rich. As usual, we'll be updating you on both KMI and KML. I'm going to start with a high-level overview and then turn over to our President Kim Dang to give you an update on our segment performance.

David Michels, KMI's CFO, will take you through the numbers. Then Dax Sanders will update you on KML and we'll take your questions on both companies. The fourth quarter capped a transformative year for KMI as we grew our business, strengthened our balance sheet, increased our dividend and continued to find attractive new opportunities to expand our network. We experienced outstanding performance in our natural gas segment, our largest segment, where we saw significant year-over-year growth, we brought expansion projects online and added new project opportunities to the backlog, highlighted by our Permian Express Pipeline Project, which we FID-ed earlier in the year and which brings an additional two Bcf a day from the Permian Basin to our extensive intrastate pipeline network on U.S.

Gulf Coast. That project, like our Gulf Coast Express Project, is secured by long-term contracts. We experienced a record increase in natural gas supply and demand across the country, and 2019 is projected to be another solid year of growth for U.S. natural gas.

That growth drives the value of our existing network and creates opportunities for us to invest capital at attractive returns to expand that network. We had solid contributions from other parts of our business as well. Kim and Dave will take you through our results. We made tremendous progress during 2018 in strengthening our balance sheet.

We self-funded our expansion capital expenditures as we have since the latter part of 2015. Now we also sold our Trans Mountain Pipeline and the Trans Mountain Expansion Project for CAD 4.5 billion. That transaction allowed us to return substantial value to our KML and KMI shareholders while enabling the strengthening of our balance sheet and the de-risking of both entities. In large measure, as a result of that transaction, we were able to end the year with our debt-to-EBITDA multiple at 4.5 times, handily beating our goal of 5.1 times, which is what was assumed in the 2018 plan.

So we had a very good 2018. And as we showed in our 2019 guidance release, we're expecting good year-over-year growth in 2019 as well. Now we will cover -- we will be focused on our 2018 results in today's call. The timing of this call, as always, comes right before we do our Investor Day.

We'll have that next week, and we'll go into the details on 2019 at that time. With that, I'll turn it over to Kim.

Kim Dang -- President

Thanks, Steve. Well, natural gas had another outstanding quarter. It was up 8%. Market fundamentals there remain very strong.

For the full year, natural gas demand increased from approximately 81 Bcf a day to approximately 90 Bcf a day, a 9 Bcf a day or 11% increase. This is driving nice results on our large diameter pipes. For the fourth quarter, transport volumes increased approximately 4.5 Bcf a day on our transmission system, a 15% growth. Deliveries to LNG facilities were over one Bcf in the quarter.

That's approximately a 400 million cubic feet a day increase versus the fourth quarter of 2017. Power demand on our system for the quarter was up 300 million cubic feet a day and exports to Mexico on Kinder Morgan pipelines were up a little over 70 million cubic feet per day. Overall, as Steve said, this higher utilization of our system, a lot of which came without the need to spend capital, resulted in nice bottom-line growth in the quarter and, longer term, will drive expansion opportunities. On the supply side, we're also seeing nice volume growth.

On our gas and crude gathering systems, volumes were up 21% and 13%, respectively, driven by higher production in the Haynesville, the Bakken and the Eagle Ford. In the Haynesville, our volumes more than doubled in the quarter and now are over -- just slightly over one Bcf per day. A few updates on the large projects, on PHP, we have identified an opportunity to increase the capacity by about 100 million cubic feet a day and are currently working to sell that capacity. On GCX, we have secured 100% of the runway, construction is under way and we remain on target for an October 2019 in-service.

On our Elba Liquefaction Project, we currently anticipate that we will be in service at the end of the first quarter. Ports business has continued to be a little late, but fortunately, we do not expect the delay to have a material impact on our cost given the way our construction and commercial contracts are structured. In our products segment, we've benefited from increased contributions from Cochin, Utopia and Double H, offset somewhat by lower contribution from KMCC due to lower contract rates on that pipe. Refined volumes were up 1%, which is consistent with the EIA.

Crude and condensate volumes were up 10%, and that's due to increased volumes on our pipeline from the Eagle Ford. However, there in the Eagle Ford, as I said on KMCC, the impact of those incremental volumes was more than offset by the lower pricing and higher volumes in the Bakken, where volumes were up 38%. NGL volumes were down 11% due to unattractive product differentials. However, the lower volumes here have minimal financial impact, given the nature of our contracts.

Our terminals business was down 5% in the quarter. The primary driver is a lease payment from Edmonton South to Trans Mountain that prior to the sale of Trans Mountain was eliminated as an intercompany transaction. Excluding the lease payment, the terminals segment would have been down less than 2%. Our liquids business, which accounts for approximately 80% of the segment, was essentially flat, with expansion in Houston and Alberta offsetting weakness in the northeast.

Our bulk business was down due to certain asset divestitures and lower contributions from coal, primarily due to a customer contract expiration, and that's despite our coal volumes. Our bulk tonnage was up 10% in the quarter, with the largest driver being coal volumes. Coal volumes were up almost one million tonnes. Our liquids utilization was essentially flat in the quarter.

CO2 segment benefited from higher CO2 prices, but that benefit was offset by lower average crude oil price and lower NGL volumes. Net crude oil production was flat versus the fourth quarter of 2017, with increased volumes at SACROC largely offset by reduced volumes at our smaller field. SACROC volumes were up 5% versus last year. They were 8% above our plan as we continue to find ways to access the significant remaining little space in that field.

Tall Cotton volumes were up 26% versus last year but below budget, and NGL volumes were down 7% in the quarter due to a plant outage, but that has since been remedied. Our net realized crude oil price was down 6% in the quarter, and that's despite a higher WTI price. The WTI hedges we have in place, as well as the increase in the Mid-Cush differential offset the increase in the WTI price. For 2019, as we've told you previously, we've substantially hedged the Mid-Cush differential.

And that's the update on the segments, and with that, I'll turn it over to David Michels.

David Michels -- Chief Financial Officer

Thanks, Kim. Today, we're declaring a dividend of $0.20 per share, which rounds out our $0.80 per share dividend declared for the full-year 2018. That's consistent with our 2018 budget and the plan that we announced to shareholders in July 2017. It also represents a 60% increase over the $0.50 per share we declared for 2017.

We also generated distributable cash flow of 2.65 times, our declared dividend for the year, and KMI had a very good quarter to cap off a very strong year. We grew meaningfully from last year's fourth quarter and ended the full year nicely above plan and nicely above 2017. In addition, as Steve mentioned, we significantly strengthened our balance sheet during the full year, and that strengthening helped result in recent credit rating updates by both -- upgrades by both Moody's and S&P to mid-BBB each, as Rich mentioned. On earnings, our revenues were up $149 million or 4% from the fourth-quarter 2017, and operating costs were down $101 million or 18%.

However, there were some certain items, both this quarter and in the fourth-quarter 2017 that created a little comparability noise. As a reminder, we define certain items as items that are recorded under GAAP that are noncash or occur sporadically and which we believe are not representative of our business' ongoing cash-generating capability. So excluding certain items, operating income would have been -- or would be up $35 million or 3% from the fourth-quarter 2017. Net income available to common stockholders for the quarter was $483 million or $0.21 per share, which is an increase of $1,528 million and $0.68 per share versus the fourth quarter of 2017, a 146% increase.

This very large change was driven by a reduction in our deferred tax asset taken out of a certain item during the fourth quarter of 2017 as a result of the federal tax rate cut. That's a good example of a certain item that can make it difficult to compare our business' operating performance period over period. Looking at earnings adjusted for all certain items, this quarter, we generated $565 million of adjusted earnings versus $469 million in fourth quarter of last year. That's a $96 million improvement or 20% better quarter over quarter.

Adjusted earnings per share is $0.25, which is $0.04 or 19% higher than the fourth quarter of 2017. Moving on to distributable cash flow, DCF per share is $0.56 for the quarter, up $0.03 or 6% from the fourth quarter of 2017. The natural gas segment was the largest driver of that growth. The natural gas segment was up $83 million or 8%.

And that segment benefited on multiple fronts, as Kim mentioned. EPNG and NGPL were both up, driven primarily by Permian supply growth. KinderHawk and South Texas assets were up, driven by increased volumes from Haynesville and Eagle Ford. CIG was also up due to growing DJ basin production.

Those are partially offset by lower commodity prices impacting our Hiland assets and lower contribution from GLNG due to an arbitration ruling calling for a contract termination. Products segment was up $3 million, terminals were down $15 million and the CO2 was down $12 million. Kim covered the main drivers behind the changes in those segments. KMC was down -- Kinder Morgan Canada was down $50 million for 100%.

That's due to the Trans Mountain sale, which closed in August. G&A or general and administrative expenses were lower by $66 million, driven by a greater amount of overhead capitalized due to a greater amount of spending on growth projects. Nonrecurring expenses, we incurred during the fourth quarter of 2017, and lower G&A from the sale of Trans Mountain. Interest expense was $6 million higher, driven by higher short-term interest rates, which more than offset benefit we received from having a lower debt balance, as well as interest income earned on the Trans Mountain sale proceeds.

Preferred stock dividends were down in the quarter due to the conversion of our mandatory convertible securities preferred in October. Cash taxes were lower by $1 million, driven by higher state tax refund. Sustaining capital was $9 million higher versus 2017. Our natural gas and products segments were partially offset by lower sustaining capital for the sale of Trans Mountain.

That was consistent with what we budgeted. We budgeted sustaining capital for 2018 to be higher than 2017 and are ending the year relatively close to plan, except for the Trans Mountain sale. Total DCF of $1,273 million was up $83 million or 7%, driven by greater contributions from natural gas, lower G&A expenses and lower preferred stock dividends, partially offset by the sale of Trans Mountain and higher sustaining CAPEX. DCF per share was up $0.56 per share, up $0.03 or 6%, same drivers of the DCF but with the partial impact on incremental shares from the conversion of our preferred stock.

For the full-year 2018 versus 2015, DCF was up $248 million or 6%, and DCF per share was $2.12 per share or $0.12 and 6% above 2017, really good full-year performances. For the full year relative to budget, DCF of $4,730 million was up $163 million or 4% from our budget for the year. DCF per share of $2.12 was up $0.07 from a budget of $2.05, 3% higher. So very nice performance for the full year versus plan as well, especially considering the sale of Trans Mountain, and had budgeted Elba Liquefaction to be in service during 2018.

Now turning to the balance sheet, just like last quarter, you're going to see two net debt-to-EBITDA figures with 4.4 times, includes all of the Trans Mountain sale proceeds as we consolidated all of that cash on -- from KML balance sheet onto KMI. Including the cash that was paid to KML public shareholders on January 3, which is estimated at the end of the year to be $890 million, our adjusted net debt-to-EBITDA was 4.5 times, which was the second number. That 4.5 was a little bit better than last quarter of 4.6 and has much improved from year-end 2017 of 5.1, as well as the 5.1 we budgeted for the full year of 2018. Obviously, Trans Mountain's sale was the largest driver of that improvement.

Proceeds have now been distributed to both KMI and to the public KML holders. We used a portion of our share to pay down a little more than $400 million that we had on our revolver and most of the remainder to fund a $1.3 billion bond maturity that's coming up here in February. The two largest changes on the balance sheet, that would be our -- from year end, our cash and PP&E, and both of those are largely driven by the Trans Mountain sale. Net debt ended the quarter at $34.2 billion, a decrease of $2.5 billion from year end and a decrease of $400 million from last quarter.

So I'll reconcile those here briefly. Quarter change, we have $1.27 billion of DCF. We spent $586 million in growth CAPEX and contribution with our joint ventures, a dividend of $455 million. We've repurchased 0.3 million of shares.

And we had a working capital to source of $184 million, which was largely driven by a tax refund we received in the fourth, approximately $400 million reduction for the quarter. For the full year, the $2.5 billion was driven by $4.7 billion of our DCF, growth CAPEX -- CAPEX and JV contribution of $2.57 billion, $1.6 billion of dividends, 273 million of share repurchases, divestiture proceeds, mostly because of Trans Mountain, $3.4 billion. But the KML public shareholders' portion of those proceeds is $890 million. And then we had a working capital used of $300 million, which was largely driven by a refund payment during the year.

That reconciled through $2.5 billion lower debt. And with that, I'll turn it back to Steve.

Steve Kean -- Chief Executive Officer

OK Now we're going to turn to KML, and Dax Sanders will give you the update.

Dax Sanders -- Executive Vice President and Chief Strategy Officer

Thanks, Steve. Before I get into the results, I do want to update on a few general times. First, and the release mentioned, we made the promise return of capital distribution associated with Trans Mountain sale on January 3. More specifically, we distributed almost 1.2 billion to KML's restricted voting shareholders for approximately $11.40 a share.

We also completed the three-for-one reverse stock split that was approved at the shareholders' meeting last November. With respect to the sale of Trans Mountain, you will recall that the agreement calls for a customary final working capital adjustment. We are substantially through that process and the review of the calculation with the government of Canada and believe that the final judgment will result in us making a final cash payment back to the government of approximately $35 million in the first quarter. And as such, we have booked this amount.

This adjustment should not be viewed as a lowering of the purchase price or otherwise change the economics. Rather, it simply reflects that at closing, we delivered less cash to the government than was contemplated. Consequently, and as I will walk you through in a minute, this will not have an impact on the previously communicated net cash and net debt position of KML. Moving to the business front, this is the first quarter where baseline was essentially in service through the entire quarter and it contributed nicely to the portfolio.

As of the end of the year, we had spent approximately $348 million of our share, with just over $8 million remaining to the total project spend, where our share is $357 million. The $357 million compares to the original estimate of $398 million, and as I have mentioned previously, it is a result of cost savings on the project. Finally, a topic that I know is on everybody's mind is KML's ongoing strategic review. While we don't have anything to announce as the review is ongoing, we are hopeful that we will have the review completed and a direction to announce by the next earnings call.

While this review is taking some time, the time we are taking is necessary, given the range of options, the cross-border complexity, the fact that a strategic combination or sale of the company are among the options, and the evaluation of those options require third-party price and term discovery, and that process takes time. Now moving toward the results. And of note, as I talk through the results, I'm generally only going to reference results of continuing operations, as we believe those are much more useful and relevant. Today, the KML board declared a dividend for the fourth quarter of $0.1625 per split-adjusted restricted voting share or $0.65 annualized, which is consistent with previous guidance.

Earnings per restricted voting share from continuing operations for the fourth quarter of '18 are $0.30, and that is derived from approximately $40 million of income from continuing operations, which is up approximately $22 million versus the same quarter in 2017. The biggest contributors to the increase are strong revenue associated with the baseline tank and terminal coming online and interest income associated with the proceeds from the Trans Mountain sale. I do want to offer one comment on the almost $28 million loss of discontinued ops. That is due almost entirely to the $35 million payment on Trans Mountain that I mentioned.

Adjusted earnings from continuing operations, which exclude certain items, were approximately $43 million compared to approximately $18 million from the same quarter in 2017. Total DCF from continuing operations for the quarter is $62.9 million, which is up 28.7 from the comparable period of 2017. That provides coverage of approximately $13 million and reflects a DCF payout ratio of approximately 31%, which is obviously somewhat skewed from the interest income. Looking at components of the DCF variant, segment EBITDA before certain items is up $9.9 million compared to Q4 '17, with the pipeline segment up approximately $6.1 million and the terminals segment up approximately $3.8 million.

The pipeline segment was higher primarily due to the recognition of the efficiency revenue on Cochin and the nonoccurrence of an in-line inspection done in 2017, Q4 2017. The terminals segment was higher due primarily to baseline coming online, as the asset was not in service in 2017 and higher contract renewal rates at the North 40, partially offset by the expiration of a contract on the Imperial JV and the onetime nature of a capital true-up via the same asset in 2017. G&A is essentially flat. Interest is favorable by approximately $24.7 million due to the interest on the Trans Mountain proceeds and lower interest expense.

The cash tax line item was essentially flat. Preferred dividends were up $2.6 million, given Q4 of 2018 had both outstanding for the full quarter according to the press. Sustaining capital was unfavorable, approximately $3.6 million compared to Q4 '17, due to timing of some work on both Cochin and within the terminals segment. Looking forward to 2019, as with last year, I'll walk you through the details of KML's budget at the analyst conference next week.

With that, I'll move on to the balance sheet, comparing year-end 2017 to 12/31/18, and my comments will focus only on the line items related to the retained assets and not the assets or liabilities held for sale. Cash increased approximately $4.227 billion to $4.338 billion. And as I mentioned last quarter, there's a lot of moving pieces in the change associated with Trans Mountain that stem from the CAPEX spend on behalf of the government, the government credit facility and other purchase price adjustments, such that I'm not going to take you through all that on this call. But if you want more detail, feel free to give us a call.

Generally, the increase is the proceeds received from Trans Mountain, plus DCF generated, less expansion capital, less distributions paid net of the DRIP and less the payoff of the debt we have when we received the sale proceeds. More importantly, let me take you through the pro forma reconciliation of what that year-end cash balance looks like, taking into account the immediate usage of the Trans Mountain proceeds following year end. Starting with the $4.338 billion of cash, approximately $3.977 billion was paid out with a special distribution on January 3. That's the sum of the $1.195 billion distribution payable to restricted voting shareholders and the $2.782 billion distribution payable to KMI, both shown on the balance sheet.

Next, approximately $308 million of cash taxes from the gain on the sale will be paid in Q1. Finally, you deduct the $35 million final adjustment back to to Canada that I mentioned. Netting all those items leaves you with a net cash position, obviously, with no debt, of approximately $18 million. This is consistent with the comments we've previously made about KMI having little or no net debt after taking into account all the pieces associated -- moving pieces associated with the Trans Mountain sale and associated distributions.

Other current assets increased approximately $2 million due to an increase in AR associated with baseline coming online, transition services agreement billing for Trans Mountain and interest receivable from interest on the Trans Mountain proceeds. Net PP&E decreased by $7 million as a result of depreciation in excess of net assets placed in service. Deferred charges and other assets have decreased approximately $63 million as a result of the write-off for the unamortized debt issuance cost associated with the Trans Mountain facility that we canceled. Moving on to the right-hand side of the balance sheet, as I mentioned, distributions payable and distributions payable to related parties increased from zero to $1.2 billion and $2.8 billion, respectively, as we reflected the special distribution.

Other current liabilities increased $337 million, primarily due to taxes payable on the Trans Mountain sale. Other long-term liabilities decreased by $283 million, primarily as a result of the deferred tax liability released as a result of the gain on the Trans Mountain sale. And with that, I'll turn it back to Steve.

Steve Kean -- Chief Executive Officer

OK. Thanks, Dax. We want to take a moment to honor our late General Counsel Curt Moffatt, who passed away on December 28 while skiing with his family. In addition to being a fine lawyer, Curt was a fine human being who formed deep personal connections with the people he worked with.

We lost a trusted colleague, but many at Kinder Morgan also lost a friend and a mentor. Curt loved his work, and his heart shown through in it. We'll miss him. OK.

With that, Kim, if you'll come back on, we'll take questions. [Operator instructions] 

Questions and Answers:

Operator

[Operator instructions] And our first question comes from Jeremy Tonet with JPMorgan.

Steve Kean -- Chief Executive Officer

Hey, Jeremy.

Jeremy Tonet -- J.P. Morgan -- Analyst

Good afternoon. Thanks. Just want to start off here on the CO2 segment, and taking into account some of the volatility we've seen in the commodity prices here. I was just wondering, how much of the $5.7 billion in the backlog relates to the CO2 segment? And does the commodity price environment kind of impact, I guess, the pace or how you think about that spend, given this volatility?

Steve Kean -- Chief Executive Officer

Yes. So in the CO2 segment, we've got about $1.6 billion backlog, and we'll go through this in more detail in the conference. And yes, in CO2, and also in our gathering and processing business, we look at CAPEX on an ongoing basis. So we take into account commodity prices and, obviously, the breakeven economics or the return for the projects that we look at.

So we typically will have ins and outs in both of those segments. And obviously, if commodity prices are lower, they tend to be out. So the main topic there is Tall Cotton, and we will continue to evaluate Tall Cotton and whether we make substantial additional investments in there as the year goes on.

Jeremy Tonet -- J.P. Morgan -- Analyst

That's helpful. And just want to touch on SG&A. And it just being down kind of 40%, $67 million here year over year, it seems like a big kind of step-down, and it seems like some of that relate to growth CAPEX and capitalization there. But just wondering if you could provide a little bit more color on that.

And is this kind of a new run rate? Or is the run rate something lower? Any more color you provide would be helpful.

Steve Kean -- Chief Executive Officer

That's right, a good bit of it does relate to capitalization. But, David, do you want to go through the...

David Michels -- Chief Financial Officer

About half of it is capitalization and a greater capitalized -- we had greater capital – a burdenable capital spend in the year of about $300 million relative to the prior year. So you put a reasonable capitalization rate on that and you get to around $30 million of greater capitalized G&A cost. So a lot of that was driven by GCX, which is a pretty major project, Elba Liquefaction spend. We had a couple of major projects that we were spending here as well as all of our ongoing projects as well.

And then a big chunk of that also was onetime G&A costs that we had in 2017 as it relates to -- as a result of an internal policy change, which allows more paid time off to be carried over to the subsequent year. And then, of course, we had lower G&A costs in 2018 as a result of Trans Mountain.

Jeremy Tonet -- J.P. Morgan -- Analyst

So 130 is kind of more of a real run rate G&A going forward, the way to think about it?

David Michels -- Chief Financial Officer

Well, depending on the capital -- the level of the capital spend, we'll have to evaluate that going forward.

Kim Dang -- President

And we'll show you our G&A budget for 2019 at the conference next week.

Jeremy Tonet -- J.P. Morgan -- Analyst

Gotcha. And just my first question, just to confirm real quick, $1.6 billion CO2 is of that $5.7 billion. That's the right way to think about that for the backlog?

Steve Kean -- Chief Executive Officer

And almost all of the remainder is in natural gas.

Jeremy Tonet -- J.P. Morgan -- Analyst

That's very helpful. Thank you.

Operator

The next question comes from Colton Bean with Tudor, Pickering, Holt & Co.

Steve Kean -- Chief Executive Officer

Good afternoon.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

Good afternoon. So you mentioned the improved results there in the Permian network. Is that primarily a result of throughput? Or are you still seeing some further increases in negotiated rates? And, I guess, just as a follow-on to that, when you bring GCX into service later this year, is there any potential for rate improvement on maybe the teahouse network there in South Texas?

Steve Kean -- Chief Executive Officer

Tom?

Tom Martin -- President of the Natural Gas Pipelines Group

Yes. So, I guess, first part of the question, yes, it is improvement in ultimately the rates that come up for renewal. I think on the second part, just as more gas comes into the state of Texas, dispersing that across our network, both for domestic consumption and export demand, I think there are some opportunities to increase rates on any contracts that have renewal opportunities.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

Then, I guess, just on the proposed joint venture with Enbridge and Oiltanking for the coal terminal, any thoughts as to how that project integrates with the existing footprint and whether there might be some ancillary opportunities, if you were to reach FID there?

Steve Kean -- Chief Executive Officer

Yes. So initially, there's not integration at the initial size that we would expect. And again, this is not in our backlog. This is something that we're working on with our partners and we're in development on.

Before we would put it in our backlog, we would need to see some substantial commitments from shippers. In the early part of the project, we would -- the first build, we wouldn't expect to necessarily see it, but we could add connectivity in larger builds through KMCC.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

That's helpful. Thank you.

Operator

Thank you. Our next question comes from Danilo Juvane from BMO Capital Markets.

Steve Kean -- Chief Executive Officer

Good afternoon.

Danilo Juvane -- BMO Capital Markets -- Analyst

Thanks, and good afternoon. My first question is on BHP. With a little uptick in capacity, the 100 million, I was under the impression that you already capped out in terms of MLP. What were you able to do to get this incremental 100 million squeezed out? And can you do the same thing with GCX?

Steve Kean -- Chief Executive Officer

Well, when we ordered compression, we upsized the compression order. So it's a long lead time item, and we thought there's market for it if we can squeeze some more out. So we ordered a larger compression with a large capacity compression equipment. GCX will look for little pockets here and there, but I would say, Tom, largely tapped out there.

Tom Martin -- President of the Natural Gas Pipelines Group

Yes. I think that's a fair assumption.

Danilo Juvane -- BMO Capital Markets -- Analyst

Got it. And my second question is sticking on the pipes. Obviously, with what's happening with PG&E in California, Ruby has come up with respect to it having, I think, 375 million of contracts. How should we think about that as the potential for bankruptcy involved there? Are those contracts tied to assets that are baseload and much mines? How are you guys thinking about that process for Ruby?

Steve Kean -- Chief Executive Officer

Look, I think there's some -- I mean, there's always uncertainty in a bankruptcy proceeding, but I think there's some cause for optimism. Let me first -- around the Ruby contracts, in particular, let me first start out by pointing out that it is Ruby specifically and exclusively that would be impacted by the potential PG&E bankruptcy. So it's those two contracts. One of those contracts serves the electric generators that PG&E uses to obviously generate power and service load.

The other provides service to PG&E's gas distribution business. So we view both of those as core -- or contracts that are core to PG&E's business. So that -- those two contracts together represent about $93 million a year of demand revenue, so it is a material matter to our interest in Ruby. Again, while the bankruptcy process is uncertain, there's important facts out.

One is what I've said, that they serve PG&E's core business. These contracts are used by PG&E, and we've been told to expect continued utilization of those contracts. These contracts help PG&E meeting its service obligation to core customers. The contracts were approved by the CPUC when they are entered into.

The CPUC does require PG&E to maintain upstream firm transport capacity. And so those reliability aspects, we think, help improve the chances of affirmation. Again, process is uncertain. And I'd also say, those reliability aspects were confirmed recently with the GTN outage and diminished capacity there, which caused an increase in takes on the Ruby contracts.

So even though the current basis is low -- lower and below the long-term contract rate, there are reliability benefits to be considered. And finally, it's our understanding at least that in PG&E's prior bankruptcy proceeding, they did not reject firm transport contracts. So that's not proof of what they'll do this time, but we think there are reasons for optimism on these contracts.

Danilo Juvane -- BMO Capital Markets -- Analyst

Thanks for the clarification. I'll get back in the queue.

Operator

The next question comes from Spiro Dounis with Credit Suisse.

Steve Kean -- Chief Executive Officer

Good afternoon.

Spiro Dounis -- Credit Suisse -- Analyst

Hey, good afternoon, everyone. I just wanted to start off with 2019 CAPEX guidance. It looks like cash flows should fund the majority of that and dividends. But it looks like I think I'm back into a number about 400 million full to make up somewhere else.

Should the remaining CAPEX, should the assumption be that basically fund it with debt at this point? Or could we see some noncore asset sales there?

Steve Kean -- Chief Executive Officer

Yes. Those are not really like we would look at those individually. But there could -- at these numbers, there would be an expectation of some small debt financing. So we would be financing more than all of the equity requirement and the substantial portion of the debt requirement for those capital investments.

And we'll -- again, we'll take you through that in next week's conference.

Kim Dang -- President

And there's plenty of availability on our revolver.

Spiro Dounis -- Credit Suisse -- Analyst

Got it, OK. And then I just wanted to touch base again on the Bakken and hear your latest thoughts around expanding Double H, now that new projects have been announced. I think there's the 300,000 barrel a day open season on Express. Liberty pipeline announced a 350,000 barrel over the season too.

So call it 650,000 needs to get down to securing these somehow if both of these go through. Just curious what that means for Double H here.

Steve Kean -- Chief Executive Officer

Yes. That's something that we're actively looking at. Volumes continue to grow, and we continue to work on solutions for our customers to get them through to Cushing. And there is some expansion capability on Double H.

Spiro Dounis -- Credit Suisse -- Analyst

OK. Appreciate it, guys. See you next week.

Operator

Our next question comes from Harry Mateer with Barclays.

Steve Kean -- Chief Executive Officer

Good afternoon, Harry.

Harry Mateer -- Barclays -- Analyst

Hi, good afternoon. First, just a follow-up on Ruby. How should we think about the indemnification agreement that's in place for KMI on 50% of Ruby's debt? And then just to clarify, Steve, have you been told since the recent bankruptcy headlines, that you should continue to expect utilization of those gas supply contracts?

Steve Kean -- Chief Executive Officer

First, the indemnification no longer exists. And second, we're in pretty continuous conversations with our customers.

Harry Mateer -- Barclays -- Analyst

OK. And then, David, you mentioned that KMI plans to pay down the February maturities. So I know that you'll announce it next week, but can you just give us a sense for how you plan to manage the timing and/or magnitude of new debt issuance for the balance of the year? Should we just assume late in 2019 given the $1.5 billion maturity that comes due in December?

David Michels -- Chief Financial Officer

We'll provide more information on that during the Analyst Day, but no near-term needs because of the cash that we have on hand.

Harry Mateer -- Barclays -- Analyst

Got it. Thank you.

Operator

And our next question comes from Tristan Richardson with Suntrust.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Hey, good afternoon, guys. Just curious on the projects added to the natural gas backlog in 4Q. Could you give us some highlights there? Whether that is either geographically or around the chain, whether it be midstream or transmission and general regions?

Tom Martin -- President of the Natural Gas Pipelines Group

Yes. So it's probably half midstream, which part of that is on our intrastate system, other in the G&P side. And then the other half, I would say, is supporting an LNG project yet to come.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Great. And then just a quick follow-up, talk about the -- following up on a previous question about the Bakken and the volume growth you saw there. And just talk about utilization today and whether or not there's further headroom for growth on the existing asset base or the potential for expansion would require capital?

Steve Kean -- Chief Executive Officer

Yes. So we are investing in our gathering assets in the Bakken because they are constrained. And so we have investments to expand our takeaway capability there, gas and crude. To get more out of Double H, we would have to expand it.

We would have to invest capital in it.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Understood. Thanks, guys, very much.

Operator

And our next question comes from Dennis Coleman, Bank of America Merrill Lynch.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Yes, hi. Good evening, everyone. A couple of questions, one, if I could go back first to the KML strategic review. Maybe this is reading a little bit too much into sort of what I'm hearing.

But actually, it seemed like you sort of emphasized that the options you listed were just among the options that are available. And I wonder if you might talk about what you mean by that, or what other options we should be thinking about?

Dax Sanders -- Executive Vice President and Chief Strategy Officer

Yes. Thanks, Dennis. I mean, I think the options that are on the table are all the ones that we've articulated before. I mean, KML has a good set of assets that could continue as a going concern.

It could be one of the strategic transactions that I talked about. It could come back to KMI. So I think all of the options -- there's not anything new that we have previously spoken about. And I think we're going to be very thorough in thinking about every single one of those and which one makes the most sense.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

OK. That's what I -- there's nothing new there that hasn't sort of been vetted out. Perfect. And then I guess just to dig a little bit deeper on the terminals decline, I understand the Edmonton Terminal.

But the other thing that's talked about in the release is the New York Harbor issues. I wonder if you might just expand upon that a little bit. And is that -- is it a one-time thing? Is it seasonal? Or is there some impact on the business that is more permanent?

Steve Kean -- Chief Executive Officer

It's the same issue that we brought up last time at Staten Island. We're roughly 60% utilized there. We've done a great job over the last two quarters of kind of getting our heads back above water, but we're looking at strategic alternatives for the site at this point. We're hoping that we'll have clarity on that in Q2, and we'll be able to indicate it on the next earnings call.

Kim Dang -- President

But the reason that Staten Island is uniquely impacted is because of those Boston assets...

Steve Kean -- Chief Executive Officer

$0.1375 on every barrel that goes through there, which makes it -- renders it uncompetitive with New Jersey terminals, probably two of them.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Got it, got it. OK. Thanks for that. I'll jump back.

Operator

And the next question comes from Jean Ann Salisbury with Bernstein.

Jean Ann Salisbury -- Bernstein -- Analyst

Is the government shutdown having any impact on your interactions with FERC on either the final LNG process or on the pipeline permitting and approval side?

Steve Kean -- Chief Executive Officer

No. FERC is funded, and so the answer there is no. I mean, I think there's a separate question about how a deadlocked commission will operate on certain things, but the answer is no. And more broadly, Jean Ann, the government shutdown is not having really much of any impact on us right now.

In time, with the U.S. mission wildlife not funded, it could have some impact on permitting, but nothing that's constraining us critical path -- nothing that's on a critical path currently. It's not having much of an impact on us at this point.

Jean Ann Salisbury -- Bernstein -- Analyst

That's helpful. And then is that -- another question. It seems like there's some debate about whether Permian gas pipeline have big returns. You had a slide in the appendix at the last Investor Day which shows a multiple kind of in line or even better than your average.

But I think some others that proposed projects have said that the mix of returns and duration didn't meet their bar. Can you just clarify that the Permian gas pipe projects they're working on are kind of in line with your backlog average and that you're comfortable with the duration of the projects? And just any other color.

Steve Kean -- Chief Executive Officer

Yes. We're getting these projects under contract at attractive returns with long-term contracts. And so it's -- they're good double-digit unlevered after-tax return. And it's not a 15% unlevered after-tax return, but they're a good, solid return.

And I agree with the observation just generally. I mean, we've looked at other opportunities out of the Permian crude and otherwise, and we haven't been able to find the return levels that we would require to participate in that. But we're satisfied with the returns, and they're in-line returns on our gas transportation expansion projects out of the Permian.

Rich Kinder -- Executive Chairman

This dovetails with what we said at the beginning of the call, which is we are using a disciplined approach as to how we allocate our capital. So we're not chasing deals that don't make bottom-line sense for Kinder Morgan.

Jean Ann Salisbury -- Bernstein -- Analyst

That's helpful. Thank you.

Operator

And our next question comes from Robert Catellier with CIBC Capital Markets.

Robert Catellier -- CIBC Capital Markets

Thank you. I just wanted to ask what is the impact on operations from the production curtailments in Alberta.

Steve Kean -- Chief Executive Officer

The contracts that we have are take-or-pay. They're MWC-based, monthly warehouse in charge. So we have not seen an impact.

Robert Catellier -- CIBC Capital Markets

You're not? I understand that take or pay wouldn't see an impact there, but operationally, are you seeing anything -- any different?

Steve Kean -- Chief Executive Officer

No. We actually had our Alberta Crude Terminal. We had record volumes in the fourth quarter. We had been averaging 77,000 a day.

We hit 146 in the fourth quarter. And in December, we were up to 168 and hit an all-time one-day high of 265. So volumes had been very strong. We have seen it fall off a little bit in January, as you would expect, but it had no impact on the bottom line.

Robert Catellier -- CIBC Capital Markets

OK. And then if I could get the net interest impact on the Trans Mountain sales proceeds, net impact on the DCF for KML. What I'm trying to extract is the net -- the interest income specifically related to the proceeds versus other interest expense you might have.

Dax Sanders -- Executive Vice President and Chief Strategy Officer

Yes. I think you can assume we had what we paid back for the quarter, we didn't have any debt drawn during the quarter for KML.

Kim Dang -- President

And how much interest income, this is a DCF.

Dax Sanders -- Executive Vice President and Chief Strategy Officer

Yes. So I think it's the 24.7. It's the full amount there. So I'm saying that full amount, we didn't have any amounts borrowed during that piece.

So the full amount is the interest from the...

Robert Catellier -- CIBC Capital Markets

And that's pre-tax or post-tax amount, 24.7?

Dax Sanders -- Executive Vice President and Chief Strategy Officer

That's the pre-tax amount.

Robert Catellier -- CIBC Capital Markets

OK. Thank you.

Operator

And our next question comes from Michael Lapides with Goldman Sachs.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys, easy question for you. Can you quantify what the impact on volumes being moved toward Mexico was in your system, either for the quarter or for the full year?

Steve Kean -- Chief Executive Officer

Impact on volumes moved to Mexico?

Michael Lapides -- Goldman Sachs -- Analyst

Yes, volumes directed to Mexico through your system. I'm just trying to get a gauge of whether your system is seeing a material benefit yet. And if not now, when?

Kim Dang -- President

So we moved 73 million cubic feet a day incremental to Mexico on our system during the fourth quarter versus the fourth quarter of '17.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. OK. So it's still relatively small relative to the grand scheme of things.

Kim Dang -- President

That's incremental.

Tom Martin -- President of the Natural Gas Pipelines Group

That's incremental. We're in excess of three Bcf a day on average.

Michael Lapides -- Goldman Sachs -- Analyst

Right. OK. Thanks, guys, much appreciated.

Operator

The next question comes from Chris Sighinolfi with Jefferies.

Steve Kean -- Chief Executive Officer

Hey, Chris.

Chris Sighinolfi -- Jefferies -- Analyst

Hey, good afternoon, Steve. Thanks a lot for the added color. I guess following on the question, the last question, I just want to ask about export trends you're seeing on the refined products side. There's been a rash of articles recently about growing gasoline prices in Mexico with efforts, a lot of government crackdown and pipeline stuff.

So curious, if at all, how that's impacting you and how the team is likely to respond?

Steve Kean -- Chief Executive Officer

We had record volumes on the Houston Ship Channel from an export standpoint. We were up almost 8.5% from a volume metrics standpoint over our ship docks and 10.1% on total volume. So very, very strong movement on the gasoline and diesel over our docks. In Houston alone, gasoline was up 8%, and distillates were up 6%.

Chris Sighinolfi -- Jefferies -- Analyst

Those -- that figures, are those 4Q numbers you're quoting or are those full year?

Steve Kean -- Chief Executive Officer

Full-year numbers.

Chris Sighinolfi -- Jefferies -- Analyst

OK. And have that changed at all? I guess we're very early in the new year, but it seems like a lot of this is escalated once the calendar turned. Just curious if the conditions there have altered in any way.

Steve Kean -- Chief Executive Officer

No. The only thing we've seen a little more of is we're seeing more volume move via rail out of our former crude by rail facility, which is now been repurposed to handle gasoline and distillates, and that's starting to ramp up.

Tom Martin -- President of the Natural Gas Pipelines Group

Destination Mexico.

Steve Kean -- Chief Executive Officer

That's all Mexico.

Chris Sighinolfi -- Jefferies -- Analyst

OK. OK, perfect. Thanks a lot, guys. Appreciate it.

Operator

And our next question comes Mirek Zak with Citigroup.

Mirek Zak -- Citigroup -- Analyst

Hi, good evening, everyone. Just a quick one for me. In the CO2 segment, the mid-Cush differential that you have hedged mostly for 2019, are those levels fairly similar to kind of what we saw in the fourth quarter?

Kim Dang -- President

Yes. It's roughly $8 a barrel.

Mirek Zak -- Citigroup -- Analyst

OK. And just one quick follow-up. Regarding the acquisition of the Rennick field. Are you looking to potentially do additional acquisitions of this type going forward or might that depend on sort of how you see Tall Cotton develop over time?

Steve Kean -- Chief Executive Officer

Yes. I mean, that was a bit unique, given its relationship to our SACROC field and our ability to use that field for multiple purposes, meaning it produces oil and NGLs, but also the CO2 that it uses could be perhaps better used elsewhere in our portfolio and perhaps offsetting capital investments that we might make in order to expand CO2 production. So I would call it somewhat unique, but it's an example of the kind of things that we look out for, things that fit and that integrated well with our existing operation.

Mirek Zak -- Citigroup -- Analyst

OK. Great. Thank you very much.

Operator

And our next question comes from Becca Followill with U.S. Capital Advisors.

Steve Kean -- Chief Executive Officer

Good afternoon.

Becca Followill -- U.S. Capital Advisors -- Analyst

Good afternoon. Two questions. One, given that you're in settlement discussions on EPNG and pre-settlement on Tennessee, any change to the guidance you'd given for roughly $100 million impact over time and no impact in '18 -- or no impact in '19?

Steve Kean -- Chief Executive Officer

No changes yet. We're early in those discussions. We're encouraged to be engaged on those two systems, but we don't have any update in our guidance or outlook there. I think the $100 million is still good, from our perspective.

It reflects the tax-only component of that, and we'll just have to see where the discussions come out. But we prefer this environment. We've traditionally been able to work things out with our customers, and we would rather be doing it here than in a FERC process. So we're happy to be engaged on both of those systems.

Becca Followill -- U.S. Capital Advisors -- Analyst

Understand. And then back to Ruby, can you remind us of the structure there? I think, I mean, it has a preferred. And so that carves off a big chunk of the EBITDA. So if by chance PG&E were to abrogate or to recut that contract, would that disproportionately hit KMI?

Steve Kean -- Chief Executive Officer

It would disproportionately hit KMI. And you're correct, having an interest is a preferred. And that's why, as I said, it is a material matter to our interest in Ruby. But as I also said, we think that there's reason to be optimistic about these contracts.

Becca Followill -- U.S. Capital Advisors -- Analyst

Great. Thank you.

Operator

And our next question comes from Danilo Juvane with BMO Capital Markets.

Danilo Juvane -- BMO Capital Markets -- Analyst

Thank you. A couple of quick follow-up questions from me. Firstly on KML. Are there any major sticking points that may cause a potential slippage beyond the next earnings call?

Steve Kean -- Chief Executive Officer

There's always a potential for that, but I think we feel like we'll be able to give you an update at the next earnings call.

Dax Sanders -- Executive Vice President and Chief Strategy Officer

Yes. I think that's right. That's our estimated time. It takes time, and -- but we feel like we'll have an answer by that point.

Danilo Juvane -- BMO Capital Markets -- Analyst

And as a follow-up to Jean Ann's question on the permit pipeline returns, the 6x multiple that you've outlined before, that's over the course of the 10-year contract duration?

Steve Kean -- Chief Executive Officer

Yes, what that is showing, I think we stated the same way on all of these, right, 6x second year EBITDA multiple. And the contracts, the underlying contracts, are for 10 years. And when we make the decision on the project investment, we're careful to look at a variety of terminal value assumptions to make sure that we're satisfied with the returns that we're getting on our capital in a variety of scenarios.

Danilo Juvane -- BMO Capital Markets -- Analyst

That's it for me. Thank you.

Operator

Our next question comes from Jeremy Tonet with JPMorgan.

Steve Kean -- Chief Executive Officer

Hello, again.

Jeremy Tonet -- J.P. Morgan -- Analyst

Just a quick little follow-up. I wanted to touch base in Elba here. I was wondering if you could expand a little bit more on the drivers to the delay. And going, I think it was like during first quarter, you said before, now end of first quarter.

Do you guys feel comfortable with the time line? Or what's happened there exactly?

Steve Kean -- Chief Executive Officer

Yes. So the delay continues to be associated with contractor productivity. We're obviously getting into the final days here, and we have people on the ground watching the progress that we're making. We're in commissioning activities, simultaneous with the completion of the project.

And so we think end of Q1 is a good and reasonable estimate for when we'll be complete. There's obviously a band of uncertainty around that date, but we think we're closing in on it here.

Jeremy Tonet -- J.P. Morgan -- Analyst

Great. That's helpful. That's it for me. Thanks.

Operator

Thank you. And at this time, I'm showing no further questions.

Rich Kinder -- Executive Chairman

OK. Well, thank you all very much for spending time with us, and we will see most of you next week at the Investor Day. Thank you.

Operator

[Operator signoff]

Duration: 58 minutes

Call Participants:

Rich Kinder -- Executive Chairman

Steve Kean -- Chief Executive Officer

Kim Dang -- President

David Michels -- Chief Financial Officer

Dax Sanders -- Executive Vice President and Chief Strategy Officer

Operator

Jeremy Tonet -- J.P. Morgan -- Analyst

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

Tom Martin -- President of the Natural Gas Pipelines Group

Danilo Juvane -- BMO Capital Markets -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

Harry Mateer -- Barclays -- Analyst

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Jean Ann Salisbury -- Bernstein -- Analyst

Robert Catellier -- CIBC Capital Markets

Michael Lapides -- Goldman Sachs -- Analyst

Chris Sighinolfi -- Jefferies -- Analyst

Mirek Zak -- Citigroup -- Analyst

Becca Followill -- U.S. Capital Advisors -- Analyst

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