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Williams Partners L.P. (NYSE:WPZ)

Q4 2008 Earnings Call

February 19, 2009 11:00 am ET

Executives

Sharna Reingold - IR

Don Chappel - CFO

Alan Armstrong - COO

Analysts

Gabe Moreen - Bank of America

Sharon Lui - Wachovia

Ryan Greener - Harvest MLP Funds

Leo Kelser - Metlife

Mark Easterbrook - RBC Capital Markets

Darren Horowitz - Raymond James

John Tysseland - Citi

Operator

Good day everyone and welcome to the Williams Company's Partners L.P. Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Sharna Reingold, Manager of Investor Relations. Please go ahead madam.

Sharna Reingold

Thank you Nancy. Welcome to the Williams Partners fourth quarter 2008 earnings call. And thank you for your interest in our company. Today we will be reviewing the fourth quarter 2008 results of Williams Partners. To begin with, Don Chappel, our CFO, will make some brief remarks. Then Alan Armstrong, our COO, will review some of the operational results of the partnership. After their remarks, we will open lines for your questions you have about the results.

Before I turn it over to Don for his remarks, please note that all the slides are available in a PDF format on our website, WilliamsLP.com. Please read slides two and three within the presentation. There are forward-looking statements about the future expectations and operations that are subject to the various risks and uncertainties which are disclosed on these slides.

Also included in this presentation today are various non-GAAP numbers that have been reconciled back to measures included in Generally Accepted Accounting Principles. Those reconciliation schedules and related information are included in the slides available on our website at williamslp.com.

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

Don Chappel

Thank you, Sharna. Good morning. Let's turn to slide number five please, partnership results, just did a few highlights of our results full year and fourth quarter distributable cash flow per unit increased 33% and 25% respectively. The 2008 number was $3.44. 2008 net income of $191 million is up 16%. Certainly the fourth quarter was not up to the first three quarters of the year, more about that in just a moment.

Fourth quarter net income was affected by lower NGL prices hurricanes and non-cash impairment charges. I will touch on a couple of highlights, and Alan will drill down into much more detail in a few minutes. Our cash distribution related to the fourth quarter was up 10% over the same period in 2007 and our coverage ratio was 1.4 times.

Let's turn to slide number six. Just a reminder of the partnership, strong performance, some terrific assets, well located with great management and the results for 2008 were extraordinary. You can see here the yellow line represents our actual cash distribution per quarter. The blue line in the dot represents the DCF per LP unit and the blue bar is the DCF partnership operations, but as you can see the DCF per LP unit was well above the distribution as we certainly realized, we are operating in a very high commodity price, high margin environment and we weren't inclined to distributable all that cash knowing that certainly margins could be reduced in future periods and we are certainly seeing that in the fourth quarter and expect to see that through 2009.

So again, through 2008 results were extraordinary, and 2009 is expected to be very challenging in light of very low prices and much lower margins. Turn the page to slide number seven. As I've already mentioned, challenging environment, we have price assumptions of $40 to $60 for WTI crude oil, and $4.50 to $6 for Henry Hub natural gas and a variety of other assumptions that tend to correlate with these price levels, and that's the basis for our business plans, and we see at the end of the range a challenging but less challenging environment, at the low end of the range a very challenging environment. And certainly prices today are closer to the low end of the range than they are at the mid-point or high-end of the range.

Prior excess earnings as you saw on the prior slide, and the cash related to that and we have a $65 million cash balance as of a couple of days ago will cushion a likely DCF shortfall. And I did say DCF shortfall, and again that's related to these prices. And certainly, we could be pleasantly surprised or we could be disappointed but we are prepared for very difficult conditions.

Our objective is to maintain the distribution if at all possible and take actions to defend the distribution. And we'll certainly be working hard to do that. And as well, we'll continue to preserve growth opportunities and perhaps pursue select value-adding growth opportunities in a prudent manner. Again, our long-term goal is to grow the distribution, as this recession abates and prices and margins return to a more normal level.

Slide number eight, this slide of partnership results focuses on net income. The net income comparison can be somewhat confusing because of some of the GAAP rules related to common control, so I won't spend much time on this, but they are there for your reference on a comparative basis.

Let's turn to the next slide, slide number nine, recurring segment profit. I think this one better depicts our results and you can seen recurring segment profit in the profit in the fourth quarter of $47 million versus $81 million a year ago, a much stronger environment and for the full year $289 million, up from $271 million in 2007 and the details of the segments are at the bottom of the schedule. And again, good strong performance on a year-to-date basis really from all business segments and as you can see the fourth quarter for all that NGL services was relatively week.

For 2008, recurring segment profit increased about 7% after falling 42% in the fourth quarter within gathering and processing, West Segment, the steep decline in NGL margins during the fourth quarter significantly reduced the profitability of gathering and processing business at Four Corners and Wamsutter.

Our West Segment did benefit from the receipt of about $4 million in business interruption insurance proceeds from the Ignacio fire during the quarter. The G&P Gulf segment also struggled somewhat in the fourth quarter, unfortunately Discovery had about an $8 million loss for us in limited operations while completing repairs to its 30-inch main line resulting from the hurricane effects. Last year the fourth quarter of '07, was one of Discovery's most profitable quarters.

As Alan will discuss, Discovery's operations have been substantially restored, but it will also be unfavorably impacted by lower NGL margins as we move into 2009. Finally, our NGL Services recurring segment profit was up about 55% for the quarter and 43% for the year-to-date period over '07, as Conway finishes up another year of solid growth, the business profit has grown nicely each year since our IPO in 2005.

Now, let's look at the results for our key performance metrics DCF per LP unit. Slide number 10, for the fourth quarter and year-to-date period, DCF per LP unit grew 25% and 33% respectively, thanks primarily to Wamsutter's impressive distributions totaling about $99 million and strong distributions from Discovery totaling about $56 million.

Our fourth quarter DCF per LP unit includes almost $11 million from Discovery, which it was able to distribution, thanks to its third quarter performance before the hurricanes. During the fourth quarter, performance of Discovery did not make the distribution in January 2009. So let me say that again. Due to its fourth quarter performance, Discovery did not make a distribution in January 2009.

We sustained our unitholder distributions of $0.635 per unit, which is about 10% higher than the fourth quarter of 2007. The $0.635 distribution continued our history of maintaining a strong cash distribution coverage ratio, as I previously noted.

Turning to page number 11, liquidity at February 16th, there was $208 million available through our credit facilities, the majority of which doesn't expire in 2012. I would note that there are debt covenant restrictions that may restrict the full use of the facility, and that will be somewhat dependent on levels of EBITDA and other factors. Approximately $66 million of cash and cash equivalents are in hand and no debt maturities until June 11.

I'll now turn it over to Alan to drill down on the operational review.

Alan Armstrong

Great. Thanks, Don. Well, our fourth quarter 2008 DCF did increase 77% over the fourth quarter 2007. And as Don mentioned, it's driven by our cash distribution from Wamsutter and our higher distribution from Discovery.

The fee-based revenues also grew again this year. Additionally, we were excited to see the startup of Overland Pass Pipeline, which alleviated the allocations we endeared earlier in the year.

For the year, Wamsutter distributed $99.1 million to WPZ, which included the base distribution of $70 million plus about 52% of the distributions in excess of deferred $70 million.

We saw a nice upward trend in both gathering volumes and NGL volumes as we got past the very difficult first quarter in 2008 that we suffered from producer freeze-offs there in the first quarter of '08. But in fact, Wamsutter in the fourth quarter set a new record for gathered volumes. And in 2009, WPZ should receive approximately 67% of the excess distributions due to the higher number of sea units it will own in 2009 as compared to 2008.

We recorded a very robust DCF of $12.5 million in the fourth quarter from Discovery, which included $1.7 million payment from our business interruption insurance. However, I need to remind you that the brunt of the Hurricane Ike impact, as Don just mentioned, will show up in the first quarter. DCF, due to the timing of our distributions from the Discovery partnership, would lag our quarter by about a month usually.

This will be mitigated somewhat by the business interruption payments which continue to come in on a timely basis. And so that $1.7 million that I mentioned came in that was for December, and we do continue to get those business interruption payments. And so we're glad to have that. I'll remind you those come in at the WPZ level, not at the Discovery partnership level. And so that's for our interest there.

We did place 30-inch mainline and 20-inch lateral back in service in January, and we expect to place the 18-inch lateral back in service later this month. Fairly small volume that flows on that 18-inch lateral, but we certainly are concerned about getting our customers' service restored out there. We also continue to see incremental volumes at Discovery that I'll speak to in a few minutes.

We continue to see fee-based revenue growth in our business and we also continue to benefit from advantaged location over assets. For example, our local NGL sales from our Ignacio plant in the Four Corners, and this is where we fractionate the raw mix into spec products there locally rather than shipping to Mont Belvieu, and we benefited of about $0.13 per gallon in the fourth quarter. And that premium on the propanes and butanes here continues to hold up here in the first quarter.

In January, we saw that differential increased about $0.18 a gallon from that $0.13. We also are benefiting from the auction we have by selling our Wamsutter NGLs at Conway versus Belvieu from our Wamsutter production. And we are seeing a premium on propane that has been averaging around $0.07 per gallon for both January and February.

So the much lower transport and frac piece plus the better market options we are now receiving from Overland Pass on top of the low fuel and shrink cost that we realized due to the large basis differential out west is helping support our margins in both the Four Corners and the Wamsutter areas that relates to Overland Pass. And certainly, our margins are holding up much better than what you would see with the Gulf Coast frac spread.

Moving on to the next slide. This is our lower fourth quarter distributable cash flow. You can see how that dropped, but you can also see that this slide shows how all of our investments continue to contribute to our overall DCF. And as you can see, each area increased over 2007 despite a difficult first quarter. Also, you can see that we had an increase from fourth '07 to fourth quarter '08 even without the strong contributions from Wamsutter.

Our Conway team continues to grow a steady stream of fee-based business and produced another record setting year. Our management group there and our employees there at Conway have prided themselves and continuing to raise the bar, and they continue to outperform my expectations there.

Moving on to the next slide here on our gross margin. Although, margins have been well above the five-year average over the last three years, we continue to see year-over-year growth in our fee-based business. From 2006 to 2008, our fee-based revenues grew by $37 million. Keep in mind that 2008 also included lower fee revenues due to the Ignacio fire and the severe winter weather that we had out west again in the first quarter.

And then finally, the hurricanes in the Gulf, we certainly had a major impact to our fee-based revenues there as well. Even in a high-priced commodity environment like 2008, our fee-based revenues represented 60% of our annual gross margin.

Moving on to Discovery. Just a quick update here. Our team continues to be successful in adding new business out here, both Valley Forge and Pegasus, which were previously shown as commitments are now producing and are adding about 30 to 35 BBtus per day.

And we also have had several areas that we recently received commitments from including Yosemite, which is 30 BBtus per day, that will come on in March 2009; Clipper, which is 5 BBtus per day; and Cascade/Chinook have 10 BBtus per day in April of 2010. These were all previously listed as future opportunities. And so, we're glad to see that business now being contracted up. And these all represent deepwater fee-based revenues that continue to expand the breath of connected reserves for Discovery.

There have been some exciting announcements recently from producers in the area who have announced discoveries that increase our optimism about the lower tertiary play and that Discovery system is very well positioned and preserved.

By example, we have also now listed a new potential prospect labeled Buckskin which is out in Keathley Canyon 828, 829, 871 and 872. So we continue to see some successes by producers out to the Southwark system, and we think we are very well positioned to continue to serve there.

Moving to the next slide here on our key points, it was a record year for WPZ with contributions coming from each of our assets. The strong margins that we saw in 2008 allowed us to increase distributions per unit by $0.345, but also to build our cash balance and keep a high coverage ratio of 1.6 for the year and 1.4 even in the fourth quarter.

We are also in a good position in that we do not have any debt maturities until 2011 and about $208 million of revolver capacity that we have not touched. We are experiencing much lower margins in the first quarter of 2009, but volumes on our big systems out West should compare favorably since we have not been impacted by either the severe weather we had in the first quarter of '08 or the impact from the Ignacio fire.

We do expect to see a slowdown on our Four Corners' volumes later this year, as we expect to slow down in drilling programs with gas prices well below $4 in the San Juan Basin. However, for our '09 performance, this will result in much lower well-connect expenses, which does come right out of out DCF. So that's a nice mitigating factor to our DCF there for '09.

We continue to assess the market pricing and the impact on our margins in 2009, and we do have approximately $68 million of cash on hand that we did build during the strong margin environment in 2009. And also recall that our Conway storage business gets paid in advance for the year during March and April. So, this will help boost our cash reserves here in the near future, as that business gets paid or actual cash from customers in advance.

Earlier indications are that Conway will have another strong year in storage volumes due to contango in the market on the heavier NGL products that we're looking forward to another strong storage season there. And we're also looking at the growth in the Four Corners area coming from the Paradox and other underlying resource plays there in the Four Corners area.

So, we're excited about the opportunities in and around our assets. Our business is running very well. Our volumes are improving. Our fee-based business is improving. And we feel like we're well positioned to weather this storm that is in front of us in terms of lower margins. And we're certainly glad that we saw the margins that we saw in '08 as high margins and held our cash back as a result of that.

And with that, we'll go to Q&A.

Question-and-Answer Session

Operator

Thank you, Mr. Armstrong. We'll take our first question from Gabe Moreen from Bank of America.

Gabe Moreen - Bank of America

Good morning, everyone. A couple of questions. Alan, can you talk about the agreement you just reached I think with the Apache Nation around Four Corners and maybe the Delta, between what it's costing you for right away this year versus the new agreement you reached?

Alan Armstrong

Sure. Gabe, that agreement expired, as I recall right at towards the end of '06 and we've been operating on temporary permits out there that have been all over the map in terms of cost, but over the last two years is averaged about $4 million. It is lower than that in '08. I think it was around two and three quarter almost $3 million in '08. However, that fee that we've been paying has not allowed us to connect wells.

So we have not been out there connecting wells and really taking use of that right away. The new agreement that we have, expands us dramatically to the north of where we gather today. We have rights now to go and gather into that area. We're pretty excited about some of the prospects in that area because that's really an undrilled area in the San Juan Basin. And that, certainly, was one of the major issues for us in working with the hierarchy Apache Nation. It was really broadening our relationship to have an aligned relationship out there for the long-term that allows us to expand without having to pay additional funding in that area.

Gabe Moreen - Bank of America

Okay. And as a follow-up to that in terms of where the margin sharing agreement begins, I don't know if you can give me an exact per gallon amount. But directionally speaking, how much higher it might have be than today?

Alan Armstrong

Yeah, I can't disclose in great detail. But that midpoint is well above where we see it today. And we showed the average of $0.37 across our midstream business at a five-year average. And that gives you some reference point there. But, certainly, we're well below that midpoint today.

Gabe Moreen - Bank of America

That's fair. Don, can you talk about some of the debt covenants that were mentioned in the release in the presentation? And how those might come into play this year potentially?

Don Chappel

Sure, Gabe. I don't believe we've disclosed those publicly at this point. I do believe that we are looking at perhaps including those in our 10-K that we'll file next week. But typical debt-to-EBITDA, the interest type covenants and certainly as prices and margins go lower and lower, you can certainly create a situation where you could run up near or to your covenants. So there are clearly some things that can be done. But like most situations, we can provide no assurance that that won't be a problem, but we'll certainly be mindful of those covenants working hard to avoid those being anything that will come into play.

Gabe Moreen - Bank of America

Okay. And is there any consideration being given to potentially so far in the distribution either via, let's say, amending the sharing agreement at Wamsutter or potentially dropping down another asset to the MLP at an attractive price. I was just wondering if any of those steps are under possible consideration.

Don Chappel

Gabe, we think about all the options and I am certainly not prepared to give any color on any potential option. But we think about those. But, certainly, there are considerations to both Williams and WPZ, but we'll continue to weigh the pros and cons, a variety of options if we're faced with more difficult situations.

Alan Armstrong

Yes.

Gabe Moreen - Bank of America

Okay. Thanks, Don.

Don Chappel

To follow-up on that as to Wamsutter, I did mention in my notes that we have increased WPZ's interest in the sea units up to 65% from 50%. That effectively moves to cut that WPZ gets over and above the $70 million, from 52% up to about 67%.

Operator

And our next question comes from Sharon Lui from Wachovia.

Sharon Lui - Wachovia

Hi, good morning. I was just wondering based on your commodity forecast, what's the coverage ratio that you are expecting, I guess, based on the low end of that range?

Don Chappel

Sharon, we're not prepared to provide that in that we don't provide any guidance. That will be getting in the guidance. So we'll provide a lot of the factors that can guide you, but we are not prepared to offer guidance given the extraordinary volatility of prices, margins and costs.

Sharon Lui - Wachovia

Okay.

Don Chappel

Thanks for the question.

Sharon Lui - Wachovia

I guess I have another question. Just wondering, in terms of, I guess, the rating agencies, have you had recent discussions on, I guess, your investment grade status given the pullback in commodity prices?

Don Chappel

We talk to the agencies on a regular basis. Certainly the pullback in prices is of concern to all of us, but I can't give any color on the conversations, or any possible view on ratings. I would say from the Williams' perspective, we view our ratings to be very important. We view investment grade ratings to be something that we've worked hard to achieve, and we would expect to defend and take appropriate actions to do so.

So, maintaining an investment grade rating is clearly the goal, and we continue to work hard to either maintain those ratings or cases where we don't yet have the rating to work to be upgraded. But, of course, an upgrade will certainly take time and likely as the change in conditions.

Sharon Lui - Wachovia

Okay. Thank you.

Operator

Our next question comes from Andrew Gundlach from ASB

Andrew Gundlach - ASB

Good morning. Just a couple of quick technical questions. What were the operating expenditures at each of Wamsutter and Four Corners for the quarter?

Alan Armstrong

Do you want the direct operating expense?

Andrew Gundlach - ASB

Yeah. Well, in your guidance or in your result, you showed D&A and EBIT, you could back into almost in the NGLs per segments. Kind of curious what the OPEX was? Obviously, it should have come down Q-over-Q. While you are looking for it, maybe I can ask either Donald or if Steve Malcolm is on the call.

What can Williams' parent do to help maintain the distribution? Earlier question mentioned about cash would fall about changing things. But what about things like cutting IDRs and/or just funding what hopefully would be temporary cash shortages? How do you think about that and prioritize it in terms of using it as a strategy as opposed to just cutting the distribution?

Don Chappel

Andrew, this is Don. I am not prepared to get into all of the options and the pros and cons of each. There are many options. They all have considerations to the parent company sponsor and/or to WPZ. But there are a variety of options that companies have utilized in the past, I think you can look at those as a pretty good menu of options as to any that we may choose to execute on, I just really can't speculate.

Andrew Gundlach - ASB

You would agree that if you would rank them in terms of priority versus cutting the dividend that they would rank higher?

Don Chappel

I’m not going to rank them. But again, we do appreciate the strategic value of maintaining the distribution, but we can't offer any assurance that Williams would step up to take an extraordinary action. But again, Williams is there with a very strong interest in WPZ. We would very much like WPZ to continue to be successful both trade-well and be a source of capital in the future. And for that to happen, things are going to have to go reasonably well. So, we're very much focused on it, but I can't give you any specifics or any assurance.

Andrew Gundlach - ASB

Okay. And just on the Wamsutter change of percentage, did WPZ have to pay for that in any way? That it was going from 52% to 67%...

Alan Armstrong

We actually, as part of the normal course of business invested in growth capital out there and WPZ had the opportunity to invest in a couple of expansion project, small expansion projects out there, and so that's what they got for it.

Andrew Gundlach - ASB

As the paradox starts to come on, when do you expect it to increase the volumes through Four Corners?

Don Chappel

Yeah, great question. The way that business is flowing today, is down Northwest Pipeline. It's about 60 to 70 miles north and west of our Ignacio plant. And today, I'd say we Williams is taking that gas through a small system and some small plants that we've installed out there in the Northwest Pipeline.

As those volumes build and we become more confident with the drilling pattern out there, then, we would love to bring those volumes directly in via pipeline into our Ignacio plant. And then that is when WPZ would see that. And those volumes could be very significant just based on the acreage dedication that we have right now, given the well performance we're seeing today.

Andrew Gundlach - ASB

But when you say significant, I understand how big the basin can be. Can it make a difference in 2010, for example?

Don Chappel

I would expect if 2010, it would be late 2010.

Andrew Gundlach - ASB

Okay.

Operator

Our next question comes from Ryan Greener from Harvest MLP Funds.

Ryan Greener - Harvest MLP Funds

Good morning. Just a couple of quick questions. First of, you recognized $30 million in cash distributions from Wamsutter and Discovery. Is that simply due to a lag between recognizing those distributions and the actual DCF, however, was from the previous quarter investment?

Don Chappel

Yes.

Ryan Greener - Harvest MLP Funds

Okay.

Don Chappel

That is correct.

Ryan Greener - Harvest MLP Funds

Okay. So in the fourth quarter of 2008, it looks like you recognized around $5 million in total DCF. So we should expect in distribution approximating that amount in the first quarter?

Don Chappel

Ryan just hang on a second here. We would not have provided guidance, so we're a little sensitive to sharing something on that.

Ryan Greener - Harvest MLP Funds

You mentioned that you have $200 million availability on your revolver; however, you may not be able to utilize all of that due to various covenant restrictions. Can you mention what specific restrictions that would violate?

Don Chappel

Well, typical one, debt-to-EBITDA and EBITDA to interest. Again, if prices stay low for a long time, prices go lower, prices and margins go lower, certainly at some point you start to run a fall on covenants. Again, we are remindful of it. We've got some time here to work on that. But it's a disclosure that we're making, given that prices are at extraordinarily low levels, margins are at extraordinarily low levels, the economy is weak and we are not sure where prices and margins may go this year.

Ryan Greener - Harvest MLP Funds

I understand. And one last follow-up. Would your creditors allow you to finance your distribution based on borrowings?

Don Chappel

Would our creditors allow? I am not sure. I don't think it will be good practice to do so. I think from a credit rating standpoint, I think that would weaken our rating. I would not be inclined to borrow to pay a distribution.

Ryan Greener - Harvest MLP Funds

Okay. And then did you get the answer to the first question?

Don Chappel

I think our Discovery distribution for the first quarter would be at a very low level.

Ryan Greener - Harvest MLP Funds

Okay. Thank you.

Alan Armstrong

I might add to that. As I mentioned earlier, we are taking in the business interruption insurance proceeds at the WPZ level. So, while Discovery distribution may not be very significant, the distributions we actually would be recording for Discovery that are coming directly to WPZ would reflect the downtime that we had. And just in the order of magnitude we show that in December, that amount was $1.7 million for our December payment.

Ryan Greener - Harvest MLP Funds

Great. Thank you.

Operator

Our next question is from Leo Kelser from Metlife.

Leo Kelser - Metlife

Hi. I just wanted to touch base one more time on the potential covenant issue. And Don, if you can just talk, in the event you did have a covenant issue. What the alternatives were, whether the parent is a potential source of liquidity? As I seem to recall a couple of years back, Williams Partners didn't have its own credit facility, and back then did rely on the parent.

Don Chappel

Right. Williams Partners does now have a credit facility. It's attractively priced that we'd rather not go back for amendments because that would reopen a pricing. You know there are other options. One option would be to approach Williams. In a way that would be helpful. That remains as a possibility. But, certainly, we're not to that point yet, and I can't speak for Williams in this call or again until such discussions were to take place and decision will be made. I think its all speculation.

Leo Kelser - Metlife

Okay. And in terms of the two covenants issues, you mentioned leverage and interest coverage, is it the leverage covenant that you think would be most at risk of being violated in '09?

Don Chappel

We are not prepared to comment on that today. Since there is a lot of interest, we'll provide some information in our 10-K.

Leo Kelser - Metlife

Okay, great. Thank you.

Operator

Our next question is from Mark Easterbrook from RBC Capital Markets.

Mark Easterbrook - RBC Capital Markets

Good morning. Quick question on a Wamsutter. I think, you guys are planning an expansion with all the drilling that BP is doing with some additional processing plants. How is that going? Can you give us an update on that?

Alan Armstrong

Yes. That's actually Williams' project as you know Mark, and it is going very well. Costs are receding pretty substantially from what we planned, given the way the entire construction market is. So everything is looking very good in terms of both schedule and cost on that at this point.

Mark Easterbrook - RBC Capital Markets

And if those plants were to go on, would they be keep-whole or fixed fee or what type of contract?

Don Chappel

The way that works is, you know it's by contract and our business is expanding primarily through BPs drilling, all of BPs drilling is fee-based for both the processing and the gathering. And so, really that expansion is to make room for gas. It's being bypassed today. So a lot of that plant itself will be picking up the keep-whole gas that were bypassing today because we don't have enough capacity. But the WPZ revenues, because again we get that the first trench of the that, the WPZ revenues will come primarily fee-based at the point to that plant goes in service.

Mark Easterbrook - RBC Capital Markets

Okay. You mentioned the strong demand for Conway storage. What percentage of your capacity comes up for renewal in '09?

Don Chappel

Mark, I don't have an exact percentage.

Mark Easterbrook - RBC Capital Markets

Just roughly.

Don Chappel

Yeah, I think about 40% to 50% of our business is term five years or the longer out there. And so with inside of five years, I think it's about two thirds of our business.

Mark Easterbrook - RBC Capital Markets

Okay. Last question. I know you are not a guidance company, but have you shown out any maintenance CAPEX or growth CAPEX numbers for 2009?

Don Chappel

We have not shown that yet. That will be in our 10-K, that will be coming out soon.

Mark Easterbrook - RBC Capital Markets

Okay. Thanks, guys.

Operator

Our next question will come from Darren Horowitz from Raymond James.

Darren Horowitz - Raymond James

Just a couple of quick questions. From a hedging perspective hedging perspective you talked about some options to sell Wamsutter's heavier liquids at Conway. Is there an opportunity for you guys to lock that in or try and capitalize on that?

Alan Armstrong

Well, we're always looking at hedging opportunities and certainly the liquidity of the NGL markets is very low these days in terms of liquidity of the forward trading those markets. Trading is even thinner, as you can imagine. So, we don't see anything that we think is value creating at this point in time, but we do keep our eye on that.

Darren Horowitz - Raymond James

Sure. When you guys are looking or speculating, where you think basis differentials is going to go if things worsen for current levels? Is there any proactive way that you can kind of dial back either Four Corners or Wamsutter's equity NGL outputs? Or are there certain things that you guys are putting in place in order to try and mitigate some of this incremental volatility that could unfold?

Alan Armstrong

Well, I think I'll speak to that in two ways as to the basis differential for gas prices. First of all, obviously as the gas price falls, that's good for our processing business out there. What it typically hurts is the drilling programs of producers and their ability to forge to have the drilling programs. In the short-term, that's actually very positive for us because, obviously, we spend more on well connect than we make in first year generally.

And so that actually will improve our DCF as drilling slows down out there. The other side of that coin, obviously, is that that would mean volumes lower in 2010 and beyond as those drilling volumes might back up. But for the short-term, it's actually very positive to our DCF, if people slowdown because of basis differential.

And I think as we've said earlier, we've seen quite a bit of drilling slowdown just recently in the Four Corners. The Wamsutter area still seeing robust drilling plans out there as planned earlier. But we are starting to see some of the smaller producers back off in the Wamsutter area. And that will not have a significant impact on it, but it should lower our well connect to a certain degree.

Darren Horowitz - Raymond James

I appreciate it. Thanks.

Operator

And our next question comes from John Tysseland from Citi.

John Tysseland - Citi

Thanks, guys. Good morning. Just real quick question. Anyway to quantify end margins per gallon? How much WPZ would have benefited in 2008 as a result of having, I guess, the optionality of selling NGLs into Conway market through Overland Pass or rather than into the Belvieu market, which you guys have done historically?

Alan Armstrong

The way that is set up John, we have the ability to go to eat pick either price. So we're not just locked down to one. It just so happens that recently here we've seen prices at Conway on both propane and a little bit on the heavies to be quite a bit better. That isn't always the case as I'm sure you know and it flips around. But just if you look through from November through forward prices all the way through April, that runs right at about $0.07 per gallon. So it has been fairly steady, popped up a little bit in December, but does remain pretty steady at about $0.07 on the propane barrels.

The butanes and isobutanes are pretty spotty in terms of going up and down. But again, we have that option to pick a price. So we're pretty excited about that. Earlier, when we were planning on the project, we assume that option was worth about $0.04 to $0.05 per gallon on the upside case.

John Tysseland - Citi

That's very helpful. Thank you. And then just one more question on volumes in the Rockies. You kind of stressed on a little bit with some of the CAPEX, that you are seeing some of the producers to be back there. You kind of said that might affect 2010. So, you don't think that any kind of slowdown in drilling really is going to impact 2009 at this point from what you are seeing. Is that a fair assessment?

Alan Armstrong

Well, no. I am glad you asked that so I can clarify. It certainly would lower our volumes, particularly towards the end of the year, if the drilling slows down. And my point was, though, because we have such a large amount of our DCF that goes to support the maintenance or well connect capital that's in there and that's embedded in our DCF already. As those well connects slow down, that will flow back to us in positive DCF as we don't have to support that capital.

John Tysseland - Citi

Okay, as you are saying. And then, is there a situation in the Rockies, like what you are seeing some in the Barnett where there are well connects that still need pipe brought to them that have been drilled, but rig count is going up, but the well connects continue to go on for quite sometime or is that not as big of an issues as it is in other places like the Barnett?

Alan Armstrong

I'd say it's probably little, given what I know about the Barnett, it's a little more severe case in the Barnett given some of the landowner issues and so forth. But, we generally try to stay ahead of our producers and try to have pipe ready. If we're not, that's generally because we've got a right of way problem with the BLM or somebody like that. But, generally, we have our well connects waiting on production.

John Tysseland - Citi

That's great. Thank you very much.

Operator

That concludes the question-and-answer session today. At this time, Mr. Armstrong, I will turn the conference back over to you for any additional or closing remarks.

Alan Armstrong

Okay. Great. Thank you very much for joining us today. We had a great 2008 and we've got fundamentals behind our business with a lot of fee-based business and assets that are located very well, given the margin environment we are in, very well located to have margins well above what we think the industry average is. And so, we are looking forward to the opportunities in 2009. And we've certainly got some issues to manage around lowering our cost and getting our maintenance capital down as I mentioned earlier. But, we certainly think we're up for the challenge, and we look forward to it.

Operator

This now concludes the Williams Partners' teleconference. Thank you for your participation and have a great day.

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Source: Williams Partners L.P. Q4 2008 Earnings Call Transcript
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