David Michels came to midstream giant Kinder Morgan Inc. through relationships forged during its acquisition of El Paso Pipeline Partners. The $38-billion deal was easily the largest energy deal in 2011 and the second largest for any industry that year. At the time, he was a vice president at Barclays, sole provider of acquisition funding for the massive deal. Today he is vice president of investor relations and finance for Kinder Morgan and chief financial officer of its El Paso Pipeline Partners subsidiary.
Michels joined Kinder Morgan in June 2012 as vice president of finance and took on an expanded role in the first quarter of this year. Previously, he spent six years in investment banking at Barclays and its predecessor, Lehman Brothers, providing oil and gas capital market and M&A advisory service.
Michels also worked on the transaction that followed on the heels of the El Paso acquisition, where Kinder Morgan sold El Paso's E&P assets to a consortium led by Apollo Global Management Inc., a private-equity firm, for $7.15 billion.
Michels grew up in Spring, Texas, and graduated from the University of Texas at Austin with a degree in finance. After a brief stint with Enron, he worked for boutique energy consulting firm Lukens Energy Group, which was subsequently sold to Black & Veatch. He returned to school to earn his MBA from the University of Chicago before joining Lehman.
In a recent interview, Michels discussed midstream trends and his career path.
Investor The midstream has been a fast-developing sector in recent years as it responds to the shale-gas and –oil revolution. What trends are you watching most closely?
Michels The unconventional oil and gas revolution is flipping age-old trends in supply-demand routes. This shift will require growth projects, including new pipelines, expansions and extensions of existing pipelines, new storage service, and repurposing of existing assets to accommodate changing flows.
One of Kinder Morgan's greatest strengths is its existing footprint. Our extensive network of assets provides a strategic advantage as we compete to capture these growth projects.
Investor What are some major projects for 2014 and beyond?
Michels Demand for natural gas exports to Mexico is projected to increase substantially in the next few years. The majority of natural gas exports to Mexico today flows through our pipelines, and we are well-positioned to cost efficiently serve incremental demand by expanding existing assets along the border.
Our Tennessee Gas Pipeline runs from the Gulf Coast to the Northeast and happens to also run right through the Marcellus and Utica shale plays. Accordingly, we have multiple expansion projects on the pipeline to increase deliverability to the Northeast.
We're also actively pursuing opportunities to participate in the liquefied natural gas (LNG) export trend. We are developing a liquefaction facility at Elba Island in Georgia with Shell, our joint-venture partner. Our share of capex for that project is roughly $850 million. We also have multiple pipelines that are situated to supply proposed other export facilities. In May we signed a contract with Mitsubishi Corp., for example, for our Tennessee Gas line to transport 600 million cubic feet per day to the proposed Cameron LNG liquefaction facility in Louisiana.
Investor Where are we in the midstream response to the shale plays?
Michels It is hard to say, but there is decent visibility for several more years of significant development needs. The Eagle Ford, the Bakken and the Marcellus are fairly well defined and are expected to continue to grow and require associated infrastructure; the Utica is less defined, but its prospects are very exciting. Producers in the Utica are still generally reluctant to sign up for longer-term capacity, but should represent support to extend the midstream build-out trend.
Supported by this additional domestic supply, we are also seeing strong demand for LNG exports that may reach over 7- to 8 billion cubic feet per day. Additional pipeline and storage infrastructure will be required to accommodate this unique demand source. Given the long time frame for constructing these facilities, the associated infrastructure build-out may continue for another six to eight years or more.
Investor What do you like best about your current job?
Michels Sometimes there is a perception an operating company is not as fast-paced or interesting as investment banking. But given the scale and culture of Kinder Morgan, that isn't the case. Our active capital market programs and appetite for business development keep us engaged. And even though we are very big, the company has remained quite nimble.
Investor What's the question you get asked most often by investors?
Michels People wonder how, since we've grown so much already, we will be able to keep growing. But we've been asked that question for years, and every year we find a way. We are aided by contractual escalators across some of our businesses that have generally generated between 1% and 2% of organic growth at KMP. Beyond that, we have assembled $14 billion of identified growth projects to be completed over the next five years.
The energy infrastructure space is expanding and we are excited about our growth prospects. Like Rich Kinder says, we believe the best is yet to come.
—Susan Klann
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