Kinder Morgan Q3 2017 Earnings Conference Call Transcript (KMI)

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Kinder Morgan (NYSE: KMI)
Q3 2017 Earnings Conference Call
Oct. 18, 2017, 4:30 p.m. ET

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Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome, and thank you for standing by, and welcome to the quarterly earnings conference call. At this time, all participants are in a listen-only mode until the Question and Answer portion of today's call. During that time, you may press star six or I'm sorry, star one to ask your question. Today's conference is being recorded.

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If you have any objections, you may disconnect at this time. I will now turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. You may begin.

Rich Kinder -- Executive Chairman

Okay, thank you, Brandon, and the before we begin, as always, I'd like to remind you that today's earnings releases by KMI and KML and this call includes forward-looking and financial outlook statements within 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 disclosure on forward-looking and financial outlook statements and use of non-GAAP financial measures set forth at the end of KMI's and KML earnings releases and 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. With that on this, let me start by making just a few remarks. Steve and Kim will detail the financial results, but once again, the cash flow of KMR remain strong and demonstrates in my mind the strength and stability of the assets underpinning Kinder Morgan.

Now let me remind you that the segue into the fact that generating strong, sustainable and growing cash flow is our prime objective of Kinder Morgan. Until late 2015, after the collapse of oil prices occurred, our strategy was to distribute essentially all of that operating cash flow to our shareholders through dividends and to fund our expansion CapEx by issuing equity and debt in roughly equal increments. That approach works through thick and thin for about 18 years, but it became prohibitively expensive with the events of the weekend, energy markets after the oil collapse. And thus, in December 2015, we cut our dividend.

That's the hardest decision we've ever had to make at our company. We change our strategy and decided that going forward we would live within our cash flow funding our expansion CapEx dividends entirely out that cash flow without needing to access capital markets for debt or equity except, of course, to roll over of long-term debt obligations. At the same time, we wanted to strengthen our investment -grade balance sheet and reduce our debt-to-EBITDA ratio to around 5x. How have we done in the 7th quarter.

Since we change our modus operandi? Well, we pay down approximately $5.9 billion in debt. They're by strengthening our balance sheet and we paid for a fairly robust expansion Capistrano Graham and all our dividends out of our cash flow. As a consequence, we announced on last quarter's call our future dividend policy, which calls for increasing the annual dividend from our current $0.50 to $0.80 in 2018, that's an increase of 60% and with further increases of 25% per year in 19 and 20, which results in $1 dividend in '19 and $1.25 in 2020. In addition, our board authorized $2 billion and share repurchases during that three-year period, and we intend to continue to upon all expansion CapEx needs out of our cash flow.

I'll remind you that Trans mountain, of course, is being funded at our publicly traded Canadian affiliate, KML without further KMI capital division. As a largest shareholder in this company, I believe that this is a reasonable and sustainable path forward for this company, and I just want to reiterate those points for your benefit. And I'll turn it over to Steve.

Steven Kean -- Chief Executive Officer and President

All right. Thank you, Rich. I'm going to update you on KMI performance and then turn it over to Kim, as usual, to take you through the financials. Following that all up to you on KML and turn it over to Dax Sanders, CFO of KML, to give you the KML financial and capital raising update.

then we'll take your questions on both KMI and KML.Starting with KMI. We had a good third quarter and a good first three quarters of 2017. We are running ahead of plan year-to-date, but as we've been saying all year, we were calling that timing and expect to be essentially flat plan for the year after adjusting for the impact of the IPO of KML as well as the impact of Hurricane Harvey. Looking back over the first three quarters of the year, we have completed the two key steps that we outlined at the beginning of the year to strengthen our balance sheet and put us in a position to return value to shareholders.

We completed that JV of our Elba Island liquefaction facility in the first quarter, consistent with our budget assumptions. And in the second quarter, we secured acceptable financing for our Trans mountain expansion project, creating a self- funding entity on the strength of all of our Canadian pipeline and terminals assets. We continue to expect that we'll end 2017 with a debt-to-EBITDA ratio of 5.2x versus the 5.4 that we projected the beginning of the year. Now for a few business segments performance highlights.

First, we made promising progress in our Gulf Coast Express expansion project. This 1.9 BCF a day pipeline would connect to growing Permian Basin gas supplies with our existing Texas Intrastates network. We announced earlier this month that we are working to finalize definitive JV documents with Targa, DCP, and Pioneer, each of which would bring substantial significant volumes of commitments to the project. We believe that the combination of Targa's and DCP's Permian Basin networks and our Texas Intrastate market access provides a very attractive value proposition to our customers.

We are in advanced stages on firm transport agreements with core shippers. We've made substantial progress on this since our last earnings call, but we have not yet placed it in the project in the backlog. We will when we finalize the shipper agreements, which we are targeting for this quarter. Second, we're pleased to announce progress on several key projects in KMI.

We placed our hundred $130 million Susquehanna West gas pipeline project into service ahead of schedule in September 1. We are nearly complete on three other natural gas pipeline projects, all of which are either on time for a little bit ahead of schedule. These are our Connecticut pipeline expansions, are Orion pipeline project and our Triad pipeline. These are expansions on our TGP gas pipeline system, totaling about $270 million of capital spend.

We're also a little ahead of schedule on our $540 million Utopia NGL line and expect to placed in service in December of this year. We've made excellent progress on this project. Recall we discussed on this call this third quarter call last year that we have received an adverse decision on eminent domain in one of the Ohio circuit courts. Our team did an expanding excellent job of acquiring the necessary right-of-way, including reroutes and the purchase of an existing system.

The pipe is now in the ground. All of our HDDs are complete. We're completing the hydro testing and drying of the pipe, and we have final tie-ins and commissioning remain. This was great work by our commercial project management right-of-away legal in the rest the organization to get this project from where it was a year ago to now being ahead of schedule.

The backlog is steady at $12 billion, down just slightly from the second quarter update due to additional projects being placed in service slightly more than offsetting projects added to the backlog. In our Natural Gas segment, we saw transport volumes increase year-over-year by 3%. Key contributors were Mexico exports, higher LNG exports, and those were partially offset by lower power demand year-over-year. We also saw slightly more -- we saw slightly more than one BCF, about 1.2 BCF of new natural gas firm transport agreements with about 700 a day of that being existing but previously unsold capacity, which I think is tangible evidence of the growing demand for natural gas infrastructure, both new and existing.

Shifting to our Products Pipeline Segment. Refined products volumes and NGL's are each up 1% year-over-year. Crude and condensate volumes are down to Q3-toQ3, but slightly up year-to-date. Crude and condensate volumes in our Q3 were -- Q3 of '17 were affected by Hurricane Harvey's impact on the refining capacity on the Texas Gulf coast, which in turn, impacted our KMCC system volumes.

Volumes on KMCC are now above their pre-Harvey levels. In our Terminals business, the segment earnings before DD&A was essentially flat year-over-year, notwithstanding the impact of some asset divestitures and the impact of Hurricane Harvey on our Gulf Coast asset utilization. We have also remained aggressive in keeping all of our Jones Act vessels under charter, and discount is necessary to do so. In CO2, we experienced a lower effective oil price compared to last year and lower oil volumes, but we are on plan in this segment in part due to stronger NGL prices.

We've seen some promising progress at our SACROC field, where we have begun to delineate and capture volumes from the transition zone. That's the zone just below where we have historically been producing. In three of our projects now, we have seen oil from this zone. We have more work to do here, but this is a promising development that will add to the reserves we can target and extend the life of this field even further.

We've also maintained our cost discipline in this segment and essentially held the line on costs, notwithstanding the rapid increase in Permian Basin activity. A couple comments on Hurricane Harvey. First, our employees responded magnificently to prepare and respond and recover. Second, as we pointed out many times, our cash flows are secured by our contract structures to minimize our exposure not only to changes in commodity price, but also to usage level.

So for example, we had a de minimis financial impact from Harvey on our intrastate natural gas business, where the contracts are reservation based and generally don't require reservation charge credits until after a grace period. The impacts on volume were on volume-based charges such as throughput and ancillary charges in our liquids terminals assets, which are -- as well as some of our petcoke operations. Our Houston central processing plant, which operated at lower rates until refiners and the petchems came back up and KMCC, which as I mentioned, experienced reduced volumes while the refining capacity was down, but has since recovered to pre-storm levels. So overall, I would say a strong quarter and year-to-date at KMI, a strong financial performance and continued good progress on project execution.

And with that, I'll turn it over to Kim.

Kim Dang -- Chief Financial Officer

Great. Thanks, Steve. Today, we're declaring a dividend of $0.125 per share, consistent with our budget. On performance, first, let me highlight a few points, and then I'll take you through the details.

I'll start with the GAAP numbers, and then I'll move to DCF, which is the way we look at and think about the numbers and performance. On earnings per share, third quarter earnings per share is up $0.25 or 249% versus the third quarter of 2016. However, the way we look at it, adjusted earnings per share, which excludes certain items, is flat versus the prior period. DCF per share, which is the primary way we judge our performance, is $0.01 lower versus the third quarter of 2016 or approximately $26 million down, primarily attributable to reduced contributions from SNG as a result of the 50% sale in the third quarter of 2016.

Reduced revenue due to Hurricane Harvey, higher sustaining CapEx and pension contributions as well as the reduced contributions from our Canadian assets due to the IPO of a 30% interest in those assets. These items were partially offset by lower interest expense, nice performance on TGP and multiple newbuild Jones Act tankers that are in service. For the third quarter and year-to-date, as Steve mentioned, DCF is ahead of our budget, but that is largely timing, with sustaining CapEx and natural gas O&M being the largest contributor. For the full year, absent the impact of KML and the hurricane, very roughly, $20 million each or $40 million in total, we would expect DCF to be on budget.

Taking the impact of KML and Harvey into account, we expect DCF to be less than 1% below budget. On the balance sheet, we ended the quarter at 5.1x debt-to-EBITDA, flat to the second quarter, but down from the 5.3 at the end of last year, primarily as a result of paying down debt with the approximately $1.25 billion in net proceeds that we received from the KML IPO. Currently, we're still projecting to end the year at 5.2x as we previously communicated. But depending on the timing of expansion CapEx and exactly where we land on EBITDA, it is possible that we may end the year at 5.1x.

On expansion CapEx, we're forecasting $3.1 billion for the year. That is down from our budget of $3.2 billion. The $3.1 billion does not include any KML CapEx, including spending on Trans Mountain from June forward as we expect KML to be a self-funding entity i.e., KMI does not expect to make contributions this year to fund KML. Because of the equity that KMI contributed to fund the Trans Mountain expansion prior to the IPO, KML has the capacity to draw on its construction facility to fund its CapEx for the balance of the year.

Now, look -- turning to some of the details. Looking at the preliminary GAAP income statement, you will see that revenues are down by 1% in the quarter and that cost of sales is up, resulting in $107 million reduction in gross margin. Typically, when we see revenues down, we also expect to see cost of sales down. But the sale of the 50% interest in SNG accounts for $83 million or just under 80% of this variance.

Therefore, excluding the SNG transaction, gross margin would be down 1%, which is pretty consistent with how we view our overall results for the quarter. Net income available to common shareholders in the quarter was $334 million or $0.15 per share versus $227 million or a loss of $0.10 per share in the third quarter of 2016. More than all of the $561 million increase is explained by a $576 million change in certain items on which I will give you some details in a moment. Absent certain items, net income available to common shareholders is down $15 million, and earnings per share is flat to the 2016 numbers.

Certain items in the third quarter of this year were a benefit of $6 million. Pretax certain items were an expense of $47 million. The largest driver was a $32 million in expense associated with the change in fair market value of our derivatives contracts, which are primarily used to hedge our commodity exposure in CO2 and our midstream natural gas business segment. We reflect the impact of these hedges in DCF when the physical transaction occurs.

You will also notice $9 million associated with Hurricane Harvey. These are largely repair costs, for example, cost to repair or rebuild motors, pumps, and actuators due to flooding damage in our Houston Ship Channel facilities. We expect that we will have additional repair costs in the fourth quarter and that these repair costs will be recoverable from insurance, subject to our $10 million deductible. You will also notice that there's a certain item tax expense, which is a benefit of $53 million.

A significant portion of the benefit is associated with being able to claim the enhanced oil recovery on our 2016 tax return as opposed to only being able to claim the deduction. Now I'm going to turn to the second page of financials, which shows our DCF for the quarter and year-to-date and is reconciled to our GAAP numbers. As I said earlier, DCF is the primary financial measure on which management judges its performance. We generated total DCF for the quarter of $1.055 billion versus $1.081 billion for the comparable period in 2016, down $26 million or 2%.Looking at the breakdown of the quarter-to-quarter change.

Segment earnings before DD&A and certain items is down $29 million. Natural gas is the driver, down $31 million. All of the $31 million and more is associated with the SNG transaction, which had roughly a $50 million impact quarter-to-quarter. At the CIG rate case and reduced volumes on some of our midstream gathering and processing asset also impacted the segment in addition to Hurricane Harvey.

We estimate the Hurricane Harvey impact on our Natural Gas segment to be under $10 million, which is up -- which is our estimate of the revenue that we did not collect, primarily in this segment as a result of our customers being offline during the storm. The costs that we're incurring to repair our assets and that we expect to be reimbursed by insurance subject to the deductible, are included in the certain items. This is consistent with how we've treated other hurricane impacts in the past where we reflect the damages as a certain item expense and the insurance proceeds when we have a proof of loss as income. Absent the SNG sale and the estimated Hurricane Harvey impact, the natural gas would be up slightly, primarily as a result of expansions and capacity sales on TGP, EPNG and the Elba Express expansion.

The CO2 segment is down $12 million or 5%, primarily associated with slightly lower oil production, approximately 350 barrels a day net and a $4 per barrel lower oil price. The terminal and product segments are up $12 million on a combined basis, offsetting CO2. Products and terminals would have been up over $35 million, excluding the combined impact of Harvey and our 2 terminals divestitures. This increase was driven primarily by newbuild Jones Act tankers placed in service and nice results on our refined products assets.

The Kinder Morgan Canada variance is small. G&A is $4 million lower quarter-to-quarter. Interest expense is lower by $40 million in the quarter versus the third quarter of 2016 as a result of lower balance, just slightly offset by higher rates. We used the proceeds from the SNG joint venture transaction and the KML IPO to pay down debt.

Sustaining CapEx is higher by $22 million versus the third quarter of last year. As you may remember, we budgeted for 2017 sustaining CapEx to be higher than 2016. Cash taxes are lower by $13 million as we were able to defer certain payments until 2018 as a result of the hurricane. Other items were higher by about $24 million as we made a cash pension contribution in the third quarter of 2017, and we did not make one in the third quarter of 2016.

KML impacted us by about approximately $8 million in the quarter net. The direct impact is reflected in noncontrolling interest, which reflects the public share of KML's earnings, and that impact is somewhat offset by interest savings. Totaling those quarter-to-quarter variances, segment's down $29 million, $44 million benefit from G&A and interest and a $33 million combined increase in expense from sustaining CapEx, cash taxes and other items as well as approximately $9 million KML impact results in a DCF change of approximately $27 million versus the $26 million actual change. DCF per share was $0.47 in the quarter versus $0.48 for the third quarter of last year or down $0.01, all of which is associated with the DCF variance I just walked you through.

$0.47 per share results in over $770 million of excess distributable cash flow, above our $0.125 dividend for the quarter and almost $2.5 billion year-to-date above our declared dividend. As I said earlier, for the quarter and year-to-date, we are ahead of our budget. But for the full year, we expect to be on our budget, excluding the impact of KML and Hurricane Harvey. Including the impact of those 2 events, we would expect DCF to be less than 1% below budget.

With that, I'll turn to the balance sheet. On the balance sheet, we ended the quarter net debt of $36,467,000,000. There you'll see two lines on the balance sheet this quarter. The second line is our net debt, including 50% of the KML preferred, which is the treatment we get from net preferred with the rating agencies.

Fifty percent is included in debt and 50% is treated as equity. So when I reconcile debt, I'm going to reconcile the net debt the first line net debt, $36,467,000,000. That's down $1.69 billion year-to-date and down $134 million in the quarter. So in the quarter, down $134 million DCF was $1.055 billion.

We set $822 million on expansion CapEx and contributions to equity investments. We paid dividends of $280 million. The proceeds from the KML preferred offering were $230 million. Asset sales, which was primarily in our [inaudible] $47 million.

We got a tax refund of $144 million. We paid a legal settlement of $65 million, and then working capital and other items were a use of cash of $175 million, with the 2 largest uses being accrued interest, which was about $114 million and then the other use of cash being timing on JV distributions and debt repayments down at the JVs of about $40 million. Year-to-date, debt has decreased $1.69 billion. DCF was $3.29 billion.

Contributions to equity investments and expansion capital, $2.47 billion; paid dividends of $840 million. The IPO proceeds on KML and the KML were $1.475 billion. Asset sales and JV proceeds or cash source of $504 million, the largest of which was the Elba JV. We got a tax refund of $144 million, a legal settlement of $65 million and working capital and other items were a use of cash of $350 million, with the largest uses of cash being accrued interest of $158 million, and that's because we primarily make our interest payments on our debt in the first and the third quarter.

Debt issuance fees of approximately $70 million, most of which was associated with the Trans Mountain financing that we completed in May. And then inventory and gas purchases were a use of capital of about $100 million, primarily as the Texas Intrastate get ready for the winter season. As I said earlier, we ended the quarter at debt-to-EBITDA of about 5.1x. We still expect to end the year at 5.2x, with maybe some chance that we come in at 5.1x.

With that, Steve, I'll turn it back to you.

Steven Kean -- Chief Executive Officer and President

Okay. All right. Just a reminder on KML. KML consists of all of the Kinder Morgan Canada pipelines and terminals assets, and those include our existing Trans Mountain Pipeline system, which [inaudible] and is the only outlet for Elba world oil market also includes our Puget Sound system will takes oil from Trans Mountain and delivers it to Northwest Washington state refineries.

It includes the Canadian portion of Cochin, delivering condensate to Alberta for blending with the oil sands crude prior to transportation. So crude comes down from the oil sands to our merchant terminal position in Edmonton move on Trans Mountain or other pipelines or through one of our joint venture crude-by-rail facilities. We've built our Edmonton tank position over the last 10 years and continue to expand it with our baseline terminal joint venture with Keira, which is on time and on budget with first tanks coming on in early 2018.Finally, Vancouver Works, our multi-commodity bulk terminal in Vancouver harbor and the gateway terminal for mineral concentrates into and out of Western Canada, is also part of KML.So in summary, KML is comprised of 2 strong existing business platforms that are integral to fulfilling the transportation blending and storage needs of producers and refiners in Canada. And it has the substantial upside associated with the Trans Mountain expansion.

On that expansion, recall that in Q1 of this year, we've reached a milestone. We increased the cost projection above the [cut], which gave the shippers the right to return capacity to us. When all was said and done, all the capacity was placed thus reaffirming the market need for this project based on 2017 shipper lineup and 2017 oil sands economics. I'm repeating this because I think it's worth bearing in mind as we go through the various ups and downs in this project that this project is vitally important to our customers.

Also, recall that we have built in protections for the costs that are more difficult to estimate and control. These uncapped costs associated with the more difficult build and the urban portions of the build if higher than our cost estimate result in adjustment to our total, which includes cost and also the return. But at the same token, reduced cost go through benefit of shippers and our shippers benefit from any other portions of our costs that are capped if we -- and we absorb the overrun if any. We also have our federal approval and our B.C.

environmental approval in hand. Okay. So now, the key for us on this project is access to land and permitting so that we can be confident in the ability to efficiently construct this project. We recently received some good news on that front as we received permits from British Columbia, granting access to nearly half of the crown land parcels that we need in British Columbia.

We also received this week permits from Alberta, granting access to many of that provinces crown parcels as well. These are undoubtedly positive developments, and they've occurred very recently. However, the pace of the permitting process, and therefore, our overall construction activity, has started off slower than we planned. So as we said in the KML release, without mitigation, what we have experienced so far translates into a delay of up to 9 months.

Again, the recent progress in permitting is promising, but we need to continue to seek ways to accelerate that progress. Also, as we continue our review of the construction schedule and mitigation, we will manage our spend prudently and wisely to maximize shareholder value. For example, our full year budgeted spend for 2017 has been reduced by about CAD 340 million, and we've reduced our forecasted amounts of the year by about $160 million from our previous internal forecast in the last forecast that we made. I think this is very tangible evidence that we're going to continue to be careful stewards of KML shareholders capital as we continue the permitting and the development of this project.

And with that, I'll turn it over to Dax for the financial update on KML.

Dax Sanders -- Vice President, Corporate Development

Thanks, Steve. Before I get into the results and outlook, I want to highlight recent occurrence in the bank capital markets front. During the quarter, we completed our first offering in Canadian rate reset preferred stock in August. We launched [inaudible] $200 million in response to significant demand we were able to upsize to $300 million and price 5.25 coupon, which netted us approximately $293 million of proceeds.

As a reminder, our plan for financing the project contemplates that we will raise $1.5 billion of preferreds during the construction period and thus preferreds get 100% equity treatment under our construction facility and generally 50% to the eyes of the rating agencies. Overall, the success of this offering was generally positive step toward KML raising the capital necessary to fully financed the TMX expansion. As I move into our review of the results, as I did last quarter, I want to preface my comments with a caveat that I will now be offering quarter-over-quarter comparisons, these comparisons limited value at this point given that we are reporting a quarter where KML was owned by the public, and we'll be comparing results to a quarter where it was wholly owned by KMI. And during those periods, prior to the IPO, there were shareholder loans in place that generated significant FX, most of which is unrealized; interest and other items not reflective of the true earnings power of KML.

Therefore, we would ask you to focus on the outlook for the balance of 2017, which you will see is consistent with what we've previously discussed. Quarter-over-quarter that this will mean over time and obviously, we don't have a published budget for KML as a stand-alone company. But starting with our budget cycle this year, we will publish one, just as KMI does. Now moving on to the results and outlook for the rest of '17.

Today, we're announcing that the KML board has declared a dividend of the third quarter of $0.1625 per restricted voting share or $0.65 annualized, which is consistent with previous guidance. With respect to earnings and net income, earnings per restricted voting share is $0.11 for the quarter, which is derived from approximately $42 million of net income, which is up over a 100% from approximately $20 million of net income for the same quarter in 2016. That increase is due mainly to lower interest and foreign exchange associated with intercompany loans that were settled with the IPO. Adjusted earnings was approximately $42 million compared to $36 million for the same quarter in '16 and is more reflective of the business performance as it excludes certain items try to discuss in a minute.

With respect to DCF, DCF per restricted voting share was point -- was $0.214 for the quarter, which is derived from total DCF in the quarter of approximately $77 million, which is flat the comparable period for 2016. That provides coverage of approximately $5.4 million and reflects a payout ratio of approximately 76%. Segment EBITDA before certain items is up $1 million compared to Q3 2016 with the pipeline segment up approximately $300,000 in the terminal segment up about $700,000. The largest moving pieces within the segments are higher EDC Trans Mountain and ancillary fees at the Edmonton South terminal, offset by lower Puget volumes and contracted throughput fee reduction at the Alberta crude terminal JV that was implemented in Q4 of last year.

G&A is higher by approximately $1 million with the largest contributor being audit fees associated with being a public company. Interest comp is $5.7 million lower versus Q3 2016, primarily as a result of repayment of intercompany loans and greater capitalized interest associated with project. Total certain items for the quarter were $400,000 tax effected with most of that being unrealized FX associated with a small intercompany interest payable that was tied to the larger loans between KMI and KML that were extinguished. That table is cleared up at the beginning of the third quarter and should not create any further FX.Sustaining capital is unfavorable approximately $4 million compared to the same quarter in 2016 due largely to the timing of spend on Trans Mountain line and overall higher spending by terminals.

Cash taxes were essentially flat compared to the same quarter in 2016.Now moving on to some specifics for the full year 2017. We expect EBITDA for the full year 2017, including pre- and post-IPO periods, to be between $380 million and $390 million, and we expect DCF to come in between $315 million and $320 million. A decrease in expected DCF from the $320 million that we mentioned last quarter and the $315 million to $320 million this quarter is primarily attributable to lower ADC associated with lower spend -- lower expected spend on the Trans Mountain project versus what we expected at the end of last quarter. These expectations are consistent with the $395 million and $318 million of 2016 EBITDA and DCF respectively that we highlighted during the IPO.

With that, I'll move on to a few comments on the balance sheet. From the end of the year 2016 to September 30, cash increased approximately $171 million, which is due to $240 million of DCF plus $293 million of net proceeds from the preferred offering I mentioned and $165 million net draw on the construction facilities that I mentioned, offset by $392 million of cash actually paid for expansion CapEx, $75 million paid for debt fees, $15 million of distributions net of debt proceeds and $45 million working capital/other use of cash. PP&E increased $359 million, which is primarily due to spending on expansion project. Deferred charges and other assets increased approximately $86 million, which is primarily attributable to unamortized debt issuance costs on the construction working capital facilities.

On the right-hand side of the balance sheet, short-term debt increased by $165 million, which is the balance on the construction facility to $500 million working capital facility had 0 balance. Other current liabilities decreased by almost $159 million, which is primarily a result of a decrease in quarter-end intercompany payables from KML entities to KMI, which we will endeavor to minimize since the consummation of the IPO.Long-term debt decreased by almost $1.4 billion to zero, and that was a result of paying off the intercompany loan. As you can see, we ended this quarter with net cash approximately $165 million. Even after adding 30% of our preferred equity to our net balance, we are still in a net cash positive position of $15 million.

And with that, I'll turn it back to Steve.

Steven Kean -- Chief Executive Officer and President

Okay, with that, we'll take questions on KMI and KML.

Rich Kinder -- Executive Chairman

Okay, Brandon.

Questions and Answers

Operator

Thank you. We will now begin the Question and Answer session. If you would like to ask a question, please press star one. Please record your first and last name clearly when prompted, as well as the name of your company.

To withdraw your question, you may press star two. Once again, at this time if you would like to ask a question, please press star one. And our first question is from Julian Salisbury with Bernstein. You may begin.

Julian Salisbury -- Bernstein

Hi, good afternoon. I just had a couple on Gulf Coast Express and it seems like Permian flows to Mexico have not really materialized yet. The outlook for a while high in the next year or two keeps getting worse. Can you speak to whether-it seems like Permian producers are getting more nervous about increase in pricing for gas over the last six to nine months?

Steven Kean -- Chief Executive Officer and President

Okay. We'lI, I'll see if Tom has any other color. Not speaking to their nerves, but really just speaking to the fact that the contracting process goes is going a lot faster. I think that people are realizing that perhaps there's another way that they need to get out of Waha that the volumes going to Mexico, as you said, are not materializing as quickly maybe as the pipeline capacity to move to Mexico has materialized.

And so now with the Texas Gulf Coast becoming more of a premium market, shippers are differently looking to get there. I think that's fair to say intent to be showing up in DFT agreements that we are working on with them. So when they get East and they obviously observe the basis differential between the Permian today and what it is in Houston Ship Channel when they get East to our system, they can access Mexico through our connections with Mexico, including a pipeline that serves Monterrey. They can also access the emerging LNG liquefaction capacity that is coming online in the Gulf Coast, plus the petchems, plus the Houston area, utility, power demand in industrial market.

And so I think it gives -- and speaking of further shippers, but I think it gives producers the option to exploit a large number of different and varied markets and not bet on or depend solely on what the prospects for power demand growth in Mexico are.

Julian Salisbury -- Bernstein

Makes sense. So it really has picked up last quarter it sounds like?

Steven Kean -- Chief Executive Officer and President

It has.

Julian Salisbury -- Bernstein

And then can you FID and still hit second half of 2019?

Steven Kean -- Chief Executive Officer and President

Well, I -- we talked about FID. We talked about adding it to the backlog. I mean, I think we're hopeful and working toward trying to get things resolved and done this quarter, and I think we're making very good progress on that. But it's not completely done.

And Tom, in terms of sometime this quarter as we need to get it done.

Tom Martin -- President, Natural Gas Pipelines

Yes. That's about right [inaudible].

Julian Salisbury -- Bernstein

And the 1.9, is that kind of the maximum on that diameter? No, no real expansion CapEx?

Tom Martin -- President, Natural Gas Pipelines

Yes, I think that's max.

Julian Salisbury -- Bernstein

Okay, great. That's all for me. Thanks.

Operator

Our next question is from Tom Abrams with Morgan Stanley. Your line is open.

Steven Kean -- Chief Executive Officer and President

Hi, Tom. How are you?

Tom Martin -- President, Natural Gas Pipelines

I'm good, thanks. Just before I ask my question, a quick follow-up on the Gulf Coast Express questions. Do we have a cost number for your portion yet?

Steven Kean -- Chief Executive Officer and President

We have not put out a cost or return numbers because it's a competitive situation out there. But we have a 50% interest that we're contemplating. We could go below that to the extent that we end up cutting additional equity deals in exchange for his significant volume commitments being brought the project.

Tom Martin -- President, Natural Gas Pipelines

Okay. We'll wait on that then. But my question was on recontracting. And I think in your '17 Analyst Day, you gave, I think it was 1.5%, 1% for '18, '19, respectively on what was the risk you thought but it's really quite modest.

Is there any reason developments why there should be more or less as you see it now?

Unidentified Speaker

I mean, nothing -- nothing material that are -- I can speak to this point.

Tom Martin -- President, Natural Gas Pipelines

All right, and then attach to that a little bit. I think you said the working capital comments what can said a $40 million debt paydown at the pipeline level. Correct me if I'm wrong, but on that particular fact. But do you see additional requirements to make pipeline level debt paydown through '18?

Steven Kean -- Chief Executive Officer and President

So the $40 million just refers to an aggregate, the difference between the DCF that is in the -- what's in our DCF and what we've got in distributions from equity investments. And so in some cases, we have debt at that level that has amortization payments with it, and that's primarily at Ruby and Gulf LNG have some. But that number also just includes timing where sometimes there's a quarter lag between the DCF and the distribution coming out.

Tom Martin -- President, Natural Gas Pipelines

Got it. And the 2nd part of the question in terms of anticipated pipeline level debt paydown?

Kim Dang -- Chief Financial Officer

Anticipated at joint ventures? Other than amortization, I mean, we have a maturity, I guess, on Ruby next year of about $250 million. And we have a maturity on FEP next year of about $250 million. And so we have -- as we go through the budget process, we'll decide whether we refinance that debt or whether we pay it off.

Tom Martin -- President, Natural Gas Pipelines

All right. Great. And then if I could stick one more in and just looking at some of that kind of quickly here while you're talking so maybe not accurate, but the sales volumes and some gas gathering numbers in the gas segment seem to be declining a little bit. Any commentary around that?

Steven Kean -- Chief Executive Officer and President

Yes. We had -- I think we had sales volumes down on interest transport volumes up, right, in almost equivalent amounts. But on gathering and processing, yes, we have -- we think we're starting to see some sequential month-to-month pickup in gathering volumes. But we have experienced certainly on a year-over-year basis, declines in the key basins in which we access.

And in some cases, those declines have exceeded, but the overall basin decline is. I think the key example there is Haynesville, which has actually grown year-over-year. The primary shipper that we have there has not been an active exporter of what we think is very good rock under their acreage. We expect that's beginning to change, but we haven't seen the recovery there yet.

So we've seen declines that are commensurate, plus a little more, I'd say, then the declines that our overall basins from Q3 of '16 to Q3 of '17.

Rich Kinder -- Executive Chairman

But we expect growth in the fourth quarter, so we feel like we've bottomed out pretty much across all of our gathering systems.

Tom Martin -- President, Natural Gas Pipelines

All right. That's great.

Rich Kinder -- Executive Chairman

And Tom, coming back to Kim's answer on Ruby and FEP, those were both [inaudible] numbers she gave you. We obviously own half of each of those pipelines.

Tom Martin -- President, Natural Gas Pipelines

That's good. Thanks for that. I'll just check back in queue. Thanks a lot.

Operator

Our next question is from Shneur Gershuni with UBS. Your line is open.

Rich Kinder -- Executive Chairman

Hi, Shneur. How are you?

Shneur Gershuni -- UBS

Good, how are you, Rich?

Rich Kinder -- Executive Chairman

Good.

Shneur Gershuni -- UBS

Just a couple questions, maybe that sort of follow- up on Gulf Coast Express a realize you -- your -- because it competitive position, you can't discuss capital cost, but on a previous call you'd mentioned that it would be north of $1 billion. I -- I was wondering if it's possible to put in operation in terms of the entire project costs.

Rich Kinder -- Executive Chairman

I think I said last time I said $1 billion to $2 billion, and I'm sticking to it. I mean, it's a fairly transparent -- we just want to give our competitors any particular insight into our cost there, Shneur.

Shneur Gershuni -- UBS

Yes, it's fair enough. And I realize you can't talk about returns, but is it -- should we think about it in terms of your current project backlog? What we kind of similar to kind of the returns you typically expect? Or put it essentially be higher or lower?

Rich Kinder -- Executive Chairman

Yes, I think a comparable to our gas backlog.

Shneur Gershuni -- UBS

Okay. Great. And then with crude sort of stabilizing a little bit and some of your hedges are now rolling off in the CO2 segment, are there any other plans to revisit potentially selling the segment or doing something with the segment?

Steven Kean -- Chief Executive Officer and President

You know, we can't comment on that in any kind of specific way about potential transactions. But look, we can say again that we like this business. We're happy with this business. We get attractive returns on the capital that we invest.

I think we've got 2 specific -- this is a niche business for us, but we have 2 very key advantages that we bring to it. One is access to CO2, which is a scarce commodity; and the second is a really talented EOR team that knows what they're doing with the enhanced oil recovery fields that we have. And so we're happy to continue to own this business and think we bring real advantages to it, but it is a niche business for us.

Shneur Gershuni -- UBS

Okay. And then a final question, with respect to the share buyback that you announced last quarter, do you see any scenarios where you can potentially execute it at a faster pace than this kind of 3-year plan that was outlined certainly given where your stock price is currently at?

Steven Kean -- Chief Executive Officer and President

Well, our intention is to execute over that 3-year period. And as far as the exact timing and clearly we are not happy with our stock price right now, it's trading at -- the whole midstream sector is not trading well, and we're trading poorly, particularly on price-to-DCF basis. But the share buyback is part of a long-term plan of returning value to our shareholders and the implementation that's going to be just as we said in '18, '19 and '20.

Shneur Gershuni -- UBS

Okay. And one final question. Do you happen to have the CO2 spend for this quarter?

Kim Dang -- Chief Financial Officer

Yes, it's about $100 million.

Operator

Great, perfect. Thank you very much guys.

Our next question is from Brian Zarahn with Mizuho. You may -- your line is open.

Steven Kean -- Chief Executive Officer and President

Good afternoon, Brian.

Brian Zarahn -- Mizuho

Just following up on the buyback question. In the scenario that the midstream and capital equity markets remained soft, is there a possibility to expand the buyback authorization and potentially not grow the dividend as much in the out years?

Rich Kinder -- Executive Chairman

Well, we've said, Brian, repeatedly that we intend to return all of our operating cash flow above our capital expenditure level to our shareholders and either dividends or stock buyback. And we're on record as saying what our dividend policy is for the next three years. So I would anticipate we would follow that. Now certainly, if you get beyond that period of time and I'd certainly believe this would be the case that you have a disconnect between what we believe a disconnect between valuation and where the stock price is.

We would look at it differently. But for the foreseeable future, I think we've committed to this dividend policy and this share buyback policy, and I think that's where we are at this point.

Brian Zarahn -- Mizuho

Right. That's fair enough. Shifting to Trans Mountain. Perhaps you could clarify a bit some of the prior comments that you still expect late 2019 as of now if you can execute on these contractor efficiencies.

Otherwise, there's a 9-month delay. And then potentially, can you just discuss a bit more about the unfolding of events in the courts and how we should think about the likely appeal on this case and trying to get a better understanding of the parameters of the potential [inaudible].

Steven Kean -- Chief Executive Officer and President

Yes, I think there's really not a lot to add to what's in the release, which is that if you just took the delays experienced to date and just flow that through the schedule, we believe that results in a 9-month delay. But that's unmitigated, and so -- and also have a case where with a lot of mitigation and with several assumptions, we can call back to the December 2019 in-service date. And so there's work to be done on mitigation. There's work to be done on permitting and working with our contractors, which we really haven't had an opportunity to do in terms of bringing them in to examine our assumptions on cost and schedule and the rest.

And we'll be doing that over the coming weeks and months. In terms of the appeals, we think a couple of observations there. So there's the B.C. provincial and Order In Council.

The B.C. provincial I think is very worthy of note that the current B.C. government is defending the EA, the environmental assessment order, in terms of the adequacy of consultation with by the prior B.C. government, OK? And so I think that's a noteworthy development.

That's a development in the last few weeks, really. On the Order In Council, what we would say the federal order is about we believe that we and the federal government did everything that the Northern Gateway ordered -- advised us to do in terms of additional consultation work, et cetera. We think the federal government did an excellent job of defending the order that it issued and took into account all the relevant matters. It's always hard to predict the court proceeding outcomes no and what happened in whether someone takes an appeal or not.

Appeal is not automatic for the Supreme Court of Canada just like it's not automatic here. But again, I think it's noteworthy that the B.C. government is defending the prior order, and I think it's also noteworthy that the federal government did a lot of additional consultation and additional work in order to meet the concerns that were identified in the order gateway decision.

Brian Zarahn -- Mizuho

And just lastly on if there is an appeal of the Federal Supreme Court, how do you think about timing in that scenario?

Steven Kean -- Chief Executive Officer and President

Again, very, very hard to predict or project. We've had experience with our Anchor Loop project, which was a project that we built through the national and provincial park, and we had NEB certificate or NEB order. It was appealed. We prevailed on that appeal.

Ultimately, appeal of that, court decision was denied. And so it's just -- it's hard to know how that would play out until we see the facts.

Brian Zarahn -- Mizuho

I see. Thank you Steve.

Operator

Our next question is from Darren Horowitz with Raymond James. Your line is open.

Rich Kinder -- Executive Chairman

Hi, Darren. How are you?

Darren Horowitz -- Raymond James

I'm fine. Thanks, Rich. Hope you and everybody doing well. Steve, I just had a quick question for you on Gulf Coast Express.

And I appreciate that from a volume from a level, it's still very fluid. You guys finalized shipper agreements but you've discussed before having access to 1 BCF a day of gas across the system Texas Intrastate picking up EPNG volumes as well. So how do you balance the economic decision with regard to how much gas on the line you could source, both on KMCC and EPNG and have the ability to get that synergistic uplift in terms of capacity utilization upstream of the pipe versus what could be 0.5 BCF a day of associated gas coming out of the tailgate of Targa's processing plants and, of course, what DCT would contribute from their assets, including what they're going to do in-house.

Steven Kean -- Chief Executive Officer and President

Darren, as always, you've loaded a lot into a question. I think what you're getting at, though, is how do we look at getting the transport commitments versus purchasing the gas ourselves, which we need for our intrastate Texas portfolio of sales activity. Is that what you're getting at?

Darren Horowitz -- Raymond James

Yes.

Steven Kean -- Chief Executive Officer and President

Okay. Okay. That is something we're looking at. I think it's fair to say that we are, first and foremost, filling up with [ 10-year ] transport commitments.

But there's definitely a benefit to us accessing additional sources of gas, particularly as we've seen both declines in the Eagle Ford maybe leveling out now, but also in overcapacity out of the Eagle Ford. So adding to our sources of supplies, as you say it, is a positive and it is something that we're evaluating. That is entering into purchase agreements for supply that we can use for our own system needs.

Darren Horowitz -- Raymond James

Thank you.

Operator

Our next question is from Danilo Juvane on with BMO Capital. Your line is open.

Danilo Juvane -- BMO Capital

Thank you all for taking the questions. How are you guys today?

Steven Kean -- Chief Executive Officer and President

Good.

Danilo Juvane -- BMO Capital

Quick question for me on Utopia. Now that the pipeline has shift to ethane only, does that at all impact the contracted volumes on the pipeline?

Steven Kean -- Chief Executive Officer and President

No, there's no change to the contracted the volumes.

Danilo Juvane -- BMO Capital

Got it. And you guys filed here today something on Gulf LNG. I was wondering if you had any updates on the arbitration process there and when you're planning to ultimately advance this liquefaction?

Rich Kinder -- Executive Chairman

Yes. Well, two things, really. The arbitration is proceeding. We believe our case is exceedingly strong.

We may get a result by the end of the year in that case. In terms of opportunities on Gulf Coast liquefaction, those are things that we continue to evaluate. But I think looking at kind of the worldwide market situation for LNG, we've got the current buildout taking place really across the country, across the U.S. And then I think most analyses, which show that it's really 2023 to 2025 before we see another significant uptick in demand.

And so we may be waiting until now you have to start earlier than that to meet that demand, but we may be waiting until the market is ready to start addressing that increase in demand. So that's a ways off.

Danilo Juvane -- BMO Capital

I appreciate that. You also thing project on SNG, the expansion. Is that the only project that we've announced since the JV was announced with Southern Company?

Steven Kean -- Chief Executive Officer and President

Yes.

Danilo Juvane -- BMO Capital

Do you see visibility, any incremental growth or expansion as a-as a result of this JV going forward?

Tom Martin -- President, Natural Gas Pipelines

No, I mean, there's certainly opportunities that we're discussing with our partner and in the marketplace, so I would expect that we'll see more over time.

Steven Kean -- Chief Executive Officer and President

Yes, I think it's fair to say to you that over time the expansion is proceeding well. We have third-party shipper interest and contracting for capacity on that expansion, so I think that's going well and going according to plan.

Rich Kinder -- Executive Chairman

Partnership with Southern Company is a very good partnership, both from our standpoint and their standpoint.

Danilo Juvane -- BMO Capital

Do you happen to have any sort of order magnitude as to what incremental growth could be from that?

Steven Kean -- Chief Executive Officer and President

Yes, not really an estimate, but I we can give you at this time. I think it's working according to plan. I mean, when we announced that transaction and the things that we thought about that transaction at the time, not just the balance sheet benefit that we would get, but the value of associating ourselves with Southern Company, an active developer of gas-fired generation capacity and a large customer on the system. I think those are materializing, enabling the working relationship is quite good.

Danilo Juvane -- BMO Capital

I appreciate you answering my questions. Thank you.

Operator

Our next question is from Colton Bean with Tudor, Pickering, Holt. Your line is open.

Steven Kean -- Chief Executive Officer and President

Colton, good afternoon.

Colton Bean -- Tudor

Good afternoon. So just wanted to stick on the nat gas theme. You guys are currently permitting process on the NGPL southbound expansion project. So just assuming that project goes ahead, how much more reversal capacity would you have available? And just looking out a couple years, you've got Rover, Nexus and ultimately the Alliance expansion dropping off quite a bit of gas in the Midwest, so it seems like all of that will be looking to find a home further south so just maybe timing and the thoughts around any potential projects beyond what you've currently got queued up.

Tom Martin -- President, Natural Gas Pipelines

Yes. I mean, I think there is no probably 250 to 400 more that we could do via additional expansions, and that's probably another couple years out through the FERC process. But those discussions are ongoing with the Gulf Coast customers as well as even Canadian producers, to some extent, as well as producers off of Rockies Express.

Steven Kean -- Chief Executive Officer and President

But you've identified I think the right trend there, which is we do think there's going to be Canadian gas that wants to find its way to another market further south, and we think that there will be additional westbound supplies coming into NGPL that also want to get South to Mexico, to LNG, et cetera.

Colton Bean -- Tudor

Thanks for that I guess see tests on utopia. Did you also just recently received authorization for abandonment on TGP, just email UMTP in kind of the longer term thoughts around NGL take away from the northeast where you guys stand on that currently?

Steven Kean -- Chief Executive Officer and President

Yes. Correct. We did get the abandonment. It is a project that we continue to work on.

I think -- but there's nothing new to update or material to update there at all. And I think that there will be -- with all the expansion capacity coming, the takeaway capacity coming online and production presumably increasing behind it, I think that there's a bit of a wait and see in terms of how much NGL capacity -- how much NGL production is going to want to find a way home and where it's going to want to go, what the impact of the Shell facility is going to be in Pennsylvania and the other expansion projects out of it so -- out of the basin. So I think there's -- there are several things that have to play out over the coming months.

Colton Bean -- Tudor

Okay. So just continuing to advance the project, but nothing really new to comment on there?

Steven Kean -- Chief Executive Officer and President

Right.

Colton Bean -- Tudor

Well, thank you. That's helpful.

Operator

Our next question is from Faisal Khan, Citigroup. Your line is open.

Rich Kinder -- Executive Chairman

Good afternoon, Faisel.

Faisel Khan -- Citigroup

Good afternoon, Rich. Steve, Kim. A couple questions. Just to -- I was trying to understand some of them text in the press release around Trans Mountain.

The 9-month delay, is that -- how do I figure that into the uncapped versus the capped cost of the line, understanding that you can completely mitigate that cost if you could?

Steven Kean -- Chief Executive Officer and President

Yes. It's really -- Ian, you want to answer.

Ian Anderson -- President, Kinder Morgan Canada

Yes, I don't think the 9-month -- it's Ian Anderson. I don't think the 9-month delay scenario that we could be faced would have a bearing on the capped versus the uncapped. If we have additional AFUDC, for example, over a period, it would flow equally to -- proportionately to the capped and uncapped as it's currently defined. Okay?

Faisel Khan -- Citigroup

Okay. Understood. And then if I understand the sort of Court of Appeals case right now and they've already heard, I guess, oral arguments and briefs. I mean, this sounds like it's the -- one of the final pieces of a ruling that you need.

I mean, what else am I looking at here? I understand some of the stuff around the BCEAO. But for the FCA, I mean, if you -- once you get this ruling, is that it? What else -- what other challenges can be sort of mounted against you?

Steven Kean -- Chief Executive Officer and President

I mean, we have the ruling that we need in terms of the federal government's Order in Council. It's just that, that Order in Council is being appealed. The fact that there's appeal and depending on the outcome of the results of that appeal doesn't mean that we can't construct. And we encountered this in the U.S.

as well, where somebody might be appealing an aspect of a FERC certificate, for example, but depending on what the court finds and if it does find an infirmity, depending on what that infirmity is, that doesn't necessarily stop us from continuing to progress the project. So look, we can't predict outcomes of court proceedings, and this is a key one, there's no question, but we have the authorization that we require from the federal government.

Faisel Khan -- Citigroup

And the pending receipt of some of the further permits and approvals, is that mutually exclusive of the -- what's going at the FCA or is there any link to that?

Steven Kean -- Chief Executive Officer and President

No, those are different things. Those are different things. So for example, what we were talking about and what we received here just recently, Friday of last week and then Tuesday, I guess, right, of this week were permits from the Alberta and British Columbia provincial authorities giving us access to Crown lands. So that's a separate set of permits not having to do with the Order in Council that's on appeal in the federal court.

Faisel Khan -- Citigroup

Okay. Okay. Got it. And then if I -- just shifting back to the U.S.

on the gathering and processing side. So I just want to understand just the commentary around this. So the volumes are down about, I guess, 5% or so sequentially quarter-to-quarter, but I guess, 150 million a day or so to 2.5 BCF a day. I was just trying to understand like how much of that was related to the hurricane and how much was sort of the base decline rate taking place in these two -- these three basins, I guess?

Steven Kean -- Chief Executive Officer and President

Okay. I'll ask Tom to give you any other specifics that he has -- but so, our volumes, our gathered volumes if you look from 2Q to 3Q of 2017 would have been affected by the hurricane. And so when I mentioned earlier that when petchems -- when petchems shut-in, that will have a cascading effect -- and refineries, that will have a cascading effect upstream to like gas processing plants, like our Houston Central plant, for example, where if we're not processing the gas, we can't put it in the gas stream because it will -- it won't be quality spec. It hasn't been dried out.

The liquids haven't been extracted. And so then, in turn, that bucks, if you will, upstream to the producers who have to be shut in if their gas is too rich to be taken into -- it's not pipeline-quality gas. Now there were other Harvey effects, like some producers got effectively rained out, out there and had to shut down their operations. We had situations where if they couldn't control pressures, we couldn't take a physical risk.

And so there are a number of factors. But that would definitely have an impact on 2Q of '17 to 3Q of '17 volumes, obviously, particularly in the Eagle Ford. When I was talking before, I was talking about 3Q of '16 to 3Q of '17 and the fact that we were having gathering volume declines there, some of which are explainable by the difference between those two periods in the basin performance, right, which again is the comment. We're starting to see it level off and turn around now.

You got to do this basin by basin almost. But also some of it is, I think, we're running a little behind basin volumes there, too. And that's a function of where people are maximizing, where people are optimizing where they have minimum take obligations, for example, and a number of other factors.

Faisel Khan -- Citigroup

Well, I guess, let me ask it this way then. Are you back up to the 2-point -- the decline sort of flattened out in 2Q versus 1Q and looks like -- it looked like if without the hurricanes, they were going to be flat sequentially. But is that a fair statement? When I look at where you are today, do you have a number today versus a year ago?

Tom Martin -- President, Natural Gas Pipelines

What was the biggest single area that we saw declines Q2 to Q3 was in Copano South Texas, which is the Eagle Ford. And yes, we are back up to pre-storm volumes here early in the fourth quarter. We also saw somewhat of a decline on our KinderHawk system. And that's largely dependent on BHP activity, which we view that as timing that we expect growth in volumes there as we proceed into the fourth quarter and into '18.

Faisel Khan -- Citigroup

Okay. Got it. Just last question for me, just on the Jones Act tanker market. Where are you guys seeing rates right now and how are things sort of trending? I understand you guys took another vessel and chartered it up.

But where are the spot rates and where do you think things are right now versus a quarter ago?

Steven Kean -- Chief Executive Officer and President

And John Schlosser is the President of our Terminals group is here. So John?

John Schlosser -- President, Terminals

Our rates in 2015 were roughly $62,000 a day across the entire fleet. Last year, they hit a high watermark around $67,000 a day. And because of the decline this year, we've seen them come back down to the $62,000 a day across the entire fleet.

Steven Kean -- Chief Executive Officer and President

That's an average for the fleet.

John Schlosser -- President, Terminals

Average for the fleet, correct.

Faisel Khan -- Citigroup

Okay. And is the end demand, is that coming back for -- as some of these contracts roll off?

John Schlosser -- President, Terminals

The market is continuing to be soft. We anticipate it staying soft through '18. We think that will be more like '19 now.

Faisel Khan -- Citigroup

Okay, that's helpful. Thank you, guys. I appreciate that.

Operator

Our next question is from Jeremy Tonet with JP Morgan.

Rich Kinder -- Executive Chairman

Hi, Jeremy. How are you?

Jeremy Tonet -- JP Morgan

Good. Thank you, good afternoon. Just a couple of quick cleanup questions here. Just want to make sure I was clear as far as the hurricane impact on your results for the quarter and how you're treating it.

So for the $1.75 billion of EBITDA, that would exclude any damages, but lost business for the quarter would be included in that number. Is that the right way to think about it?

Kim Dang -- Chief Financial Officer

Yes.

Rich Kinder -- Executive Chairman

That's correct.

Jeremy Tonet -- JP Morgan

Okay. So would have been even higher -- got you -- without that. And then as far as going through the portfolio that you guys have right now and thinking about noncore assets, you guys think you've kind of completed that process at this point or are there other things that you might look to sell at this point?

Steven Kean -- Chief Executive Officer and President

Yes. I think we've done some divestitures of noncore assets, particularly in the Terminals group and in our bulk terminals business. There's nothing that I would say is currently on the list, but it's also something that we continue to review and evaluate and see if it makes sense. If we get a higher price if it's in somebody else's hands, whatever, a higher value in somebody else's hands, continue to work on the balance sheet, et cetera.

But I think we've done a lot of that work already.

Jeremy Tonet -- JP Morgan

That's helpful. That's it for me. Thank you.

Operator

Our next question is from Robert Kwan with RBC Capital Markets. Your line is open.

Rich Kinder -- Executive Chairman

Robert, how are you?

Robert Kwan -- RBC Capital Markets

Good. Thanks, Rich. Just on the Trans Mountain permits. I'm wondering, do you have the number of how many B.C.

permits were needed when the NDP came in. And how many have been granted post the change in government?

Ian Anderson -- President, Kinder Morgan Canada

Yes, Robert. It's Ian. It's difficult to boil it down to those numbers given the fact that there are so many, for example, Ministry of Transportation permits that were required of B.C., north of 900. And those will come kind of in bundles by location geographically that we prioritize.

And what I can say is that the parcels and tracts of land that we got access to this past week were 327 of 631. So about a little more than half of all of the B.C. Crown land access that we needed we were granted last week. We're working hard on the process to satisfy the permit requirements for the Ministry of Transportation, but there's lots of them and many of them aren't really required as per construction schedule until next year, depending upon location.

But we're working hard on kind of the northern interior sections, Spread three and four. There's probably about 80 there that we're anticipating receipt of soon. And then there are a number of smaller ones related to things like wildlife and stream access. But the number, overall, is well over 1,000 that we need from British Columbia, and we've continued to get in the hundreds since the NDP took their seat.

And I think the other message there, Robert, is the bureaucracies and the statutory authorities in B.C. have continued to do their work. We don't yet see any evidence of any political interference.

Robert Kwan -- RBC Capital Markets

Understood. And with lower 2017 spending estimate, just drilling down into the nature of that, is it pretty much all just a delay in what you're going to have to spend on contractor and construction activities? Or are you also delaying some of the ordering of longer lead time materials?

Ian Anderson -- President, Kinder Morgan Canada

No, it's essentially all related to delays in permitting and approvals and condition relief that we need and the varying sections of construction and land access would be a part of that as well.

Rich Kinder -- Executive Chairman

And let me just add that as we've said in the release and as Steve has said, the permitting has been slower than we expected it to be. And we certainly need that permitting in order to build this project, obviously. And what we are doing here, and I think Steve and Ian are doing a great job on it is, we are not going to waste shareholder money. We're being very careful on how we spend the dollars because of the situation that we're currently in.

And that's the numbers that Steve gave you. And we'll continue to look at spending levels as we go forward and adjust them accordingly.

Robert Kwan -- RBC Capital Markets

Okay. That's actually a great lead into my final question then. With the up to 9 months delay that you're looking at right now, and you've talked about the potential to try to mitigate that delay given we've got some of the court cases over the next few months, how do you kind of assess your desire to mitigate the delay versus the desire to mitigate risk by waiting instead for the court decisions?

Ian Anderson -- President, Kinder Morgan Canada

I mean, I think it's principally a matter of mitigating the effects of the delay on schedule, assuming we can do that in a very cost-efficient way. And I'm optimistic that we can. That's working with our contractors and the permitting authorities to create more efficiency and timeliness of those processes. The event of the last couple weeks are very encouraging.

And I'm optimistic as a result of those. But we need to maintain that and we need to be working with our contractors now to look for ways and means to keep schedule. The court actions, as Steve said, will play out as they play out. And I'm not going to speculate or predict when or how those might unfold.

We feel good about the cases that were put forward to the panel by both the federal government, the NEB and ourselves. And those decisions will flow in the normal course. But we're not, at this point, attaching any schedule impacts as it relates to the FCA proceedings.

Robert Kwan -- RBC Capital Markets

Understood. Thank you very much.

Operator

Our next question is from Becca Followil with U.S. Capital Advisors. Your line is open.

Rich Kinder -- Executive Chairman

Hi, Becca. How are you this afternoon?

Becca Followil -- U.S. Capital Advisors

Good, thank you. Three minor questions. Kim, on the certain items that are listed in footnote 1, gas pipelines negative $44 million, CO2 negative $20 million and Terminals positive $18 million, can you outline what those are?

Kim Dang -- Chief Financial Officer

Sure.

Becca Followil -- U.S. Capital Advisors

While you're looking, I'll go ahead and ask the second one. The legal settlement that you talked about, what was that for? And can you remind us of the amount?

Kim Dang -- Chief Financial Officer

The legal settlement was associated with the UPRR right-of-way. And that was approximately $65 million. With respect to certain items, the -- I can -- why don't we just do this offline. But I can talk to you about what each of those are.

If, for example, on terminals, it's probably associated with the sale of our interest in Deeprock, which is a gain on that. On natural gas, it's probably associated with the EagleHawk settlement, which is a positive impact. But then you're going to have contract amortization on the fair value of the charter rates and terminals, which is going to potentially increase the gain because that's actually revenue that we record. We record as a certain item.

So there's a whole host of items which I'm happy to go through with you.

Becca Followil -- U.S. Capital Advisors

We'll just do that offline.

Kim Dang -- Chief Financial Officer

Okay.

Becca Followil -- U.S. Capital Advisors

Okay. And then the last question is on the Southwest Colorado production, the CO2 segment. The gross numbers are up, the net numbers are down, is there something unusual going on there?

Steven Kean -- Chief Executive Officer and President

Yes. So you're absolutely right. Gross numbers are up and net are down. And so we had an expansion on one of our Southwest Colorado pipeline assets and our partner in that expansion went nonconsent, which means that we got the benefit of that -- of the higher interest ownership until payout of that investment.

Did I get that right?

Rich Kinder -- Executive Chairman

That's right.

Steven Kean -- Chief Executive Officer and President

Okay.

Kim Dang -- Chief Financial Officer

This is on the volumes on CO2, though, right?

Steven Kean -- Chief Executive Officer and President

Yes, but she's talking about why is the gross different from the net.

Kim Dang -- Chief Financial Officer

This isn't on the production. They went nonconsent on the field.

Steven Kean -- Chief Executive Officer and President

It's on the field, not the pipeline expansion.

Kim Dang -- Chief Financial Officer

On the field, not on the pipe.

Steven Kean -- Chief Executive Officer and President

So partner went nonconsent and then when the project paid out, the partner's interest returned.

Becca Followil -- U.S. Capital Advisors

Okay, content, thank you. That's all I had.

Operator

Our next question is from Dave Winans with Prudential. The line is open.

Rich Kinder -- Executive Chairman

Good afternoon, Dave.

Dave Winans -- Prudential

Yesterday, hey, thanks, guys. Just an easy one, after the adjustments, what's the total budget, capital spending budget KML now?

Steven Kean -- Chief Executive Officer and President

KML for 2017.

Kim Dang -- Chief Financial Officer

For 2017 at KML, Q3 and Q4 are 2 14 and 2 67, roughly.

Steven Kean -- Chief Executive Officer and President

Thanks for taking one from a bondholder, appreciate it guys.

Rich Kinder -- Executive Chairman

Did you get that, Dave?

Dave Winans -- Prudential

Yes. I got it. Thank you.

Operator

Our next question is from the Faisel Khan with Citigroup. Pure one is open.

Faisel Khan -- Citigroup

Sorry, just one last question, the pension contribution in the quarter, how much was that? And is that -- does that sort of shore you guys up for the year?

Kim Dang -- Chief Financial Officer

Yes. $22 million, and that's all expect to make this year.

Faisel Khan -- Citigroup

Thanks, Kim.

Operator

At this time, I'm showing no further questions.

Rich Kinder -- Executive Chairman

Okay. Well, thank you all very much. And some of you Yankee fans watch the game. I know the Astros fans will be.

Thank you.

Duration: 78 minutes

Call participants:

Rich Kinder -- Executive Chairman

Steven Kean -- Chief Executive Officer and President

Kimberly Dang -- Chief Financial Officer

Dax Sanders -- Vice President, Corporate Development

Julian Salisbury -- Bernstein -- Analyst

Tom Martin -- President, Natural Gas Pipelines

Shneur Gershuni -- UBS -- Analyst

Brian Zarahn -- Mizuho -- Analyst

Darren Horowitz -- Raymond James -- Analyst

Danilo Juvane -- BMO Capital -- Analyst

Colton Bean -- Tudor -- Analyst

Faisel Khan -- Citigroup -- Analyst

Ian Anderson -- President, Kinder Morgan Canada

John Schlosser -- President, Terminals

Jeremy Tonet -- JP Morgan -- Analyst

Robert Kwan -- RBC Capital Markets -- Analyst

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

Dave Winans -- Prudential -- Analyst

More KMI analysis

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