Williams Partners' CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 8.13 | About: Williams Partners (WPZ)

Williams Partners L.P. (NYSE:WPZ)

Q1 2013 Earnings Confernce Call

May, 08, 2013, 09:30 am ET

Executives

John Porter - IR

Alan Armstrong - Chairman & CEO

Frank Billings - SVP, Northeast G&P

Allison Bridges - SVP, West Operations

Rory Miller - SVP, Atlantic-Gulf

Randy Newcomer - Interim SVP, NGL & Petchem Services

Don Chappel - CFO

Jim Scheel - SVP, Corporate Strategic Development

Analysts

Brad Olsen - Tudor Pickering

Faisel Khan - Citigroup

Stephen Maresca - Morgan Stanley

Ted Durbin - Goldman Sachs

Sharon Lui - Wells Fargo

Craig Shere - Tuohy Brothers

Brett Reilly - Credit Suisse

Becca Followill - U.S. Capital Advisors

Carl Kirst - BMO Capital Markets

Selman Akyol - Stifel Nicolaus

Helen Ryoo - Barclays

Operator

Good day everyone, and welcome to the Williams and Williams Partners First Quarter Earnings Release Conference Call. Today’s conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. John Porter, Head of Investor Relations. Please go ahead, sir.

John Porter

Thank you, Lisa. Good morning and welcome. As always we thank you for your interest in Williams and Williams Partners. Yesterday afternoon, we released our financial results and posted several important items on our websites, williams.com and williamslp.com. These items include yesterday’s press releases with related schedules and the accompanying analysts packages, a presentation discussing these results, guidance updates and growth opportunities with related audio commentary from our President and CEO, Alan Armstrong, and an update to our data books, which contain detailed information regarding various aspects of our business.

This morning Alan will make a few comments and then we will open it the discussion up for Q&A. We also have the four leaders of our operating areas present with us. Frank Billings, leads our Northeastern G&P operating area; Allison Bridges, leads our Western Operating area; Rory Miller, leads our Atlantic-Gulf area and Randy Newcomer is here from our NGL and Petchem Services operating area. Additionally, our CFO, Don Chappel is available to respond to any questions.

In yesterday’s presentation and also in our data books, you will find an important disclaimer related to forward-looking statements. This disclaimer is important and integral to all of our remarks and you should review it. Also included in our presentation materials are various non-GAAP measures that we reconcile to Generally Accepted Accounting Principles. Those reconciliation schedules appear at the back of the presentation materials.

So with that I'll turn it over to Alan Armstrong.

Alan Armstrong

Good morning. Thank you, John. Well, first of all our cash flow metrics for the first quarter remained strong and inline with our expectations despite a continued decline in NGL, earnings at WMB however for the quarter were impacted by higher DD&A including an additional $17 million in non-cash amortization related to the ACMP acquisition. So we were pleased with the 1.05 coverage at WPZ despite another 21% step down in NGL margins from the fourth quarter of ‘12 and now a 50% decline from the first quarter of 2012.

Looking forward, we see some short-term painful, but long-term healthy cross currents both the NGL markets and the natural gas markets continue to expand on the backs of low cost supplies relative to global alternatives. The natural gas market right now is ahead as the demand decisions have already been made in response to extended low gas price period, but the NGL demand side will also begin to respond, but perhaps not as quickly and certainly to more limited options for market expansions.

As a result, we see a couple of years where NGLs will be over-supplied and producer response to natural gas price signals will be met by most people but will be slower than most peoples’ expectations. Just because of the time it takes to set the fly wheel rolling in these large scale operations. Areas like the Marcellus and the Utica will be advantaged by the benefits of large scale development, because those major programs are already in place.

For Williams, this results in great infrastructure investment alternatives to expand in the market access for these large scale NGLs and natural gas values at still will be ready to deliver quickly against the positive market signals. So in a short-term, the higher natural gas prices will negatively impact our margins, but longer-term this will drive even more investment alternatives.

So while our 62% growth in DCF from 2013 to 2015 is certainly impressive we could see this improve even more if the forecasted pricing environment holds up long enough to spur more supplies and more demand, because after all our strategy is built around the volume throughput that will come with expanded markets for these great low cost resources being developed here in North America.

We are excited this quarter to announce the continuation of our 20% dividend growth at WMB through the 2015 guidance and we look forward to sharing more about our large platform of growth capital projects that supports this continued growth in 2015 and beyond with our Analyst Day coming up here on May 21st.

And with that, we will turn it over for questions.

Question-and-Answer Session

Operator

I am sorry, ready for questions?

Alan Armstrong

Yes we are.

Operator

Thank you. (Operator Instructions) And we’ll take our first question from Brad Olsen with Tudor Pickering.

Brad Olsen - Tudor Pickering

Could you provide maybe some kind of breakdown of what is driving the CapEx growth in the Northeast segment particularly; is that the result of regulatory hurdles, labor, materials or another factor?

Frank Billings

This is Frank Billings. The majority of the capital increase in the Northeast that we are seeing and forecasting for really ‘13 and ’14, a little bit of ‘15 is really targeted toward additional capacity requirements to support the drilling programs for our customers in Northeast Pennsylvania. We are actually expanding market outlook to support those drilling programs and increasing our takeaway capacity to the current pipeline connections that we have as well as setting up for constitution coming on as well. The other piece of that is we do have our Three Rivers investment in that time period as well.

Brad Olsen - Tudor Pickering

Great, thanks. And when you talk about increasing takeaway alternatives, is that focused more on gathering or is there a specific long haul pipeline that you are delivering into more than you expected you are building more capacity?

Frank Billings

It’s spread out across the current delivery points that we have today, so we have our deliveries into Transco, Tennessee and Millennium will have constitution and those are the primary ones that we are going to continue to focus on and those are the (inaudible) that are producer customers are wanting us to focus on as well.

Brad Olsen - Tudor Pickering

And is there an update at this point on Bluegrass how the contracting in that pipeline is coming along and if Bluegrass does proceed, do you believe that it reduces the demand for local market fractionation in the Northeast?

Jim Scheel

This is Jim Scheel. Bluegrass negotiations are going very well right now; we have operations, legal and commercial folks working to finalize the agreements. Its my hope that we will be finalizing those sometime during this month, so that we can go out to customers with tariff proposals up early next month. Going to the next part of the question, yes I do believe that Bluegrass will provide a great opportunity for y-grade product to move to the Gulf Coast in order to meet the customer demand for the NGLs in the large scale fractionation facilities in that area of the country.

Brad Olsen - Tudor Pickering

Great. And just one last question from me, in 2014 there was a revision to the Atlantic and Gulf segment EBITDA, it looked a little bit larger than just commodity impacts alone and I was wondering if you could comment on that? And that’s all from me. Thank you.

Rory Miller

Alan do you want me to take that?

Alan Armstrong

Yes, please Rory.

Rory Miller

Yeah, just a couple of things going on there; effective March 1, 2013, we have set our new reserve rates and rates subject to refund and the main driver there was we wound up the little lower rate base to work against that we were forecasting in earlier periods. We had a lower maintenance capital spending and so that drove the rate base down which brought that kind of forward looking base down a bit. And then there is an impact on Gulfstar. We are probably looking at a couple of months potentially delay there and that effect is kind of amplified because of the accounting treatment that we are using with the Marubeni buy end of the project which as you recall we sold half of that project to Marubeni. And due to the accounting treatment, it shows the full impact of segment profit, but the impact on DCF is only about half of that. And Don, if you may have a little more clear accounting explanation of that, but that's it in a nutshell.

Don Chappel

Just a follow-up on Rory’s comment, again we consolidate the Gulfstar project so we show a 100% of it despite the fact that our ownership is 51% and our partner, Marubeni’s interest shows up as non-controlling interest. So you see segment profit moved down as we've pushed the start-up of that project back by a quarter, but the net effect of that is about half of what shows up in the segment profit change because of the non-controlling interest change that offsets it.

Operator

And we will take our next question from Faisel Khan with Citigroup.

Faisel Khan - Citigroup

It's Faisel at Citi. I appreciate the additional guidance on the dividend for 2015, but I just wanted to ask a few questions on to the assumptions in order to get to that number for dividend growth for '15. I guess if I look at the analyst package and look at your coverage ratio for the dividend payout for ‘13 and ‘14, it seems like you have enough coverage, but it looks like that assumption is based on a very low cash tax rate. It's also based on ethylene prices kind of holding up where they are and I guess it also assumes that ethane rejection kind of continues for the foreseeable future. I am just wondering what gets you comfortable that you have enough legal room over the next few years to increase the dividend all the way to 2015 by 20%. I mean, the cash tax rate looks a little bit aggressive and the ethylene assumption also seems -- it seems decent now but there doesn’t seem to be a lot of legal room.

Don Chappel

Faisel, this is Don. I will just take the first part of the question on the cash tax rate, then I'll turn it over to Alan, but yes, you are correct cash tax rate through ‘14 is fairly low and even in the ‘15, it's less than probably the long-term rate. However, we have a forecast that goes out well beyond ‘15 and we do account for the fact that our cash tax rate will be moving up over time. And despite that, we're comfortable that we have the coverage, the capacity and the underlying growth projects to sustain that dividend growth through 2015 and again like we feel comfortable that we have strong growth beyond despite that we're not providing guidance out in that beyond ‘15 period.

Faisel Khan - Citigroup

Okay.

Alan Armstrong

Faisel, I will take the question on the pricing, particularly on the ethane and ethylene. At the WMB level which I assume your questions pointed to relevant to the dividend, don’t forget that we do have ethane exposure, positive ethane exposure in Canada, that is not captured and a lot of that PZ analysis that we've shown in terms of our sensitivity of ethane to ethylene, such that if you add back in that exposure, now remember that -- where that contract is structured, we have a floor that’s a cost to service basis for negative ethane, but when ethane goes positive, then that’s long barrels that would offset that otherwise short position that we have against ethane, so at the WMB level we're actually fairly neutral there.

In addition to that, we also have the impact and actually showed up pretty significantly in these numbers as we went to full ethane rejection from our Overland Pass business where we are showing full ethane rejection throughout this period. So even though that does not show up as direct commodity exposure, it's pretty significant in terms of its impact over this two-year period.

So if you relate, look at the full balance of our exposure there, I would tell you from a cash flow standpoint, we are pretty well neutral relative to that ethane assumption at the WMB level. And as to the ethylene and propylene margin, we are certainly showing that reducing by about 10% from what we saw here in the first quarter of 2013.

So certainly it wouldn’t suggest that that’s not without risk, but frankly we are seeing a lot of pull through on the ethylene side right now, on the demand side for ethylene. So at this point in time, we think that’s a sound assumption on our part.

Faisel Khan - Citigroup

Okay. And Alan just to make sure I understand the guidance going forward for ‘13, ‘14, ’15, the ethane equity sales that we saw in the first quarter and the ethane production numbers, we saw in this first quarter. We just assumed that those numbers are going to continue at the same first quarter numbers kind of going forward, which should be a drastic sort of reduction in volumes over the fourth quarter of last year and then all of last year for that matter. So I just want to make sure I understand that number in your guidance.

Alan Armstrong

That is and I will tell you even though we have said we will expect our pricing is down on a -- in terms of what we put out is down on an annual average basis and I will tell you it won't be that smooth, and there will be periods where we have recovery and there will be for short period in there as prices inch up and then we will see rejection turnaround. So when we say full rejection we mean that in the sense that the pricing signal on an annual average basis we will keep that, but we will see spot in fact. I think we had some periods recovery here recently here in the second quarter as well.

So we will see periods where we go in and out of recovery and rejection, but we think there is a plenty of supply to hit bid very, very quickly out there in the markets. And I think one of the thing that’s kind of reset that market a little bit from what we would have seen maybe five or 10 years ago, is there is a lot of ship or pay kind of contracts out there such that the variable expense to producer is higher than what it used to been. So, they are making a decision against ship or pay contract which is kind of lowering the point at which people are going to rejections.

And we, as Williams, really don't have that and so we are right on the edge there and really looking at variable expense, with the exception of the little bit of impact benefit we get from the overall past transportation. So I think that’s keeping that pricing level down below where you normally would see it for to encourage ethane recovery.

Operator

Our next question comes from Stephen Maresca with Morgan Stanley.

Stephen Maresca - Morgan Stanley

My first question is just on the IDR waivers. Alan, Don you had 105 coverage in the first quarter, what makes you feel like you need to do the IDR waivers through the year and how much of this was just a reduction in price assumptions or how much it was kind of you view that volumes are not picking up quite as fast as previously thought?

Alan Armstrong

Steve, I will take that. I would tell you very clearly the pricing is by far the primary driver for us on this. I am actually encouraged and I think there is a good chance that we will see volumes respond even more positively than we have in our forecast, but I would say we are at a little bit of a cross current here in the market where gas prices picked up and yet the producer, we’re not seeing that respond from the producers quite quick enough, I think they are kind of looking at this pricing and wondering if it’s for real or not in terms of this price pick up on natural gas.

And they are not quite ready to put the capital back behind what might be a blip in price. I think if that continues, that we will see that. Nevertheless, I would tell you that partially because of that response we are showing higher gas price throughout this period, which is a big driver of that lower margin. And as we said here in the second quarter, we watch butanes dropped by a penny a day for almost 30 days in a row.

And so I would just tell you that it’s hard to build a lot of optimism in that market and that pricing looking forward and we certainly don’t have a good answer other than exports picking up some of that. We don’t have good answer because we continue to see the incredible amount of NGLs that are available in places like Utica and the Marcellus and Eagle Ford. And we just see those supplies continuing to roll in.

And so yes, we’ve got expanding markets in the way of exports, but there is a tremendous amount of supply continuing to build here for the next couple of years, and we are going to need to see very large scale solutions develop like Bluegrass project to really provide big enough market access to these products.

Stephen Maresca - Morgan Stanley

Okay, and then I believe you mentioned Alan also on the podcast there's some of the lower segment profit guidance in ’14 including some changes in service dates for projects, can you elaborate what is driving a little bit of that.

Alan Armstrong

Yeah, I think primary driver there for team was the Gulfstar project that got mentioned and again that just hit segment profit by the larger number and you cut that in half and you get down to DCF. That's probably the largest impact project that we have for 2014 and I think that's really the primary driver.

Stephen Maresca - Morgan Stanley

Okay and then final one for me another thing you mention was being a little bit disappointed with the Ohio Valley cost environment, higher cost than you had thought you talked a little bit also about what is driving that, how you see that playing out over the next six to 12 months.

Alan Armstrong

Sure. I'll take that and Frank can fill in where I miss here. I would just say that we have really poured into that, but I think one of the things that might some of the way that language came off a lot of the cost increase we are talking about just from an accounting perspective is much higher depreciation expense and so that's really one of the primary drivers of expense on that. But I would tell you that we are working very, very hard to get our operations in line up there and we are really trying to notch their whole lot of expense on that we are certainly mindful to it. But there's so much value in getting that system up and running and getting it up and reliable that we are bringing in a lot of resources from other parts of the country and really working hard.

That's a very high margin business force as you can imagine on one hand and in addition to that, it's certainly a reputational issue for us as well in terms of serving the customers out there and so we're working hard. There is a lot of issue to overcome out there. A lot of that system really wasn’t dealt in robust enough way to handle the variability that we've seen in production out there and so we're working harder to overcome that and so I would just say, we're going to get there and we're having to (inaudible) to it on the expense side right now to overcome some.

Operator

And we will move on to our next question from Ted Durbin with Goldman Sachs.

Ted Durbin - Goldman Sachs

I just want to come back to the 2015 dividend. What is the coverage by the way as you define it, you are looking for in 2015 if it is sort of 13 or [134] on ‘13 or ‘14 by which you are coverage on ‘15 that you are seen?

Alan Armstrong

Ted, we will not put that out here. We will put it out on Analyst Day but we feel we're comfortable. We have more than adequate coverage in light of the assumptions that are embedded in our forecast and again we didn’t put all of our 15 detail and keep you interested and come in to our Analyst Day in a couple of weeks.

Ted Durbin - Goldman Sachs

Just on Bluegrass, again I am trying to understand the mechanics of kind of how contribution that we will get from [Boardwalk] as I understand, they will contribute the pipeline, you will contribute the cash. Is there any kind of crossover where on capital or not, they need to participate, make me walk us through that and then also this idea that the (inaudible) the enterprise line, my run model just ethane how do you see that is impacting the Bluegrass pipeline?

Jim Scheel

I will start with the first question, again this is James Scheel. The anticipation right now is that Williams and Boardwalk would be 50-50 partners in Bluegrass pipeline Boardwalk will contribute part of Texas gas that will have a value in the joint venture, Williams will through up to capital contributions for new construction. We will be equal owners throughout the pipeline as well as fractionation and storage facilities. To the extent there is customer demand for export facility would also anticipate sharing ownership and that on a 50-50 basis. That’s the expectation today and that’s what we are working towards currently with them in those negotiations. As far as (inaudible) going into additional products, actually we would support seeing some of those opportunities to provide clearing for near term liquids out of the Marcellus to meet customer demands. So I will speak for enterprise but that would be something that I think would help the market in the Northeast in the near term.

Ted Durbin - Goldman Sachs

Got it that’s helpful. And then may be just a big picture sounds like you have a lot of great (inaudible) projects a lot of capital going in, is there any sense that you feel capital constraint, I am just wondering if there is projects anywhere that you might be turning down, maybe that the pipeline into Florida that folks are working on, just kind of how you thinking about, how much capital you have available relative to the opportunity side?

Jim Scheel

Well, we certainly are in a position to allocate capital and we consistently do and I would just tell you we are very vary of risks as we do that (inaudible) and so I would say we are allocating on a risk adjusted return basis and that is you know to get situation be and that we certainly are in the regular process of allocating capital and turning down alternatives that are put in front of us today, which are above our current cost of capital on one hand but on the other hand, we certainly loaded into our equity pretty heavily last year and we’ve got such a great set of projects that provide so much value if we execute on those that anything that you can get away of that kind of value being realized is something that we are going to guard against very heavily.

Operator

We will take our next question from Sharon Lui with Wells Fargo.

Sharon Lui - Wells Fargo

Just wondering if you can talk about, I guess the decision to undertake Bluegrass at the WMB levels and whether you envision this project to generally primarily fee based cash flows that would be appropriate as the drop down to WPZ some point in time?

Don Chappel

Sharon, this is Don, I will just say that we felt that WPZ had a pretty full plate in terms of projects to develop and finance and the Williams said some excess cash flow and Bluegrass developments good place for that. So clearly it’s a perfect drop down candidate or could even be jointly developed in time, but that was really the thinking around the decision to at least initially found that from Williams.

Sharon Lui - Wells Fargo

Okay, and then I guess just looking at the cash balance that you guys have and do you project the excess cash flow at WMB, do you envision I guess any equity requirements to fund CapEx that’s at the WMB level right now?

Don Chappel

Sharon, there is no equity requirements contemplated in this plan that we put forth but we wouldn’t speculate as to what could occur, but again I think as Alan mentioned we have a vast array of opportunities, we are allocating capital very carefully looking at risk as well as strategic value and near term value as well in deciding what the funds. So it will be based on the facts and circumstance and what comes forward.

Sharon Lui - Wells Fargo

Okay and then if you could just provide some color on – experience that Ohio valley and how that’s being resolved?

Frank Billings

Sure this is Frank again. Right now we are really working to the bottleneck the system with some near term projects to kind a get some take some quick wins. Really we’re beginning to implement on long term operational philosophy for the area that really focuses on removing the fraction of gas stream that once to be liquid under the condition we are realizing in the gallon system. We are still going to move those hydrocarbons to Fort Bela and (inaudible) but we are going to pull them out of gathering line and put it them into our liquids line then handle the separation of product upgrading at those sense of facilities that (inaudible) Mountsville.

The primary benefit that we are attempting to do is we move those liquids that we are pooling in the line and driving up the operating pressures of the system as at the point that our liquids are curtailed and the volumes. Another significant benefit of the change in philosophy is really a significant reduction in our (inaudible) activity which has been impacting our reliability, but also creates a lot of operational complexity.

As an example we are going to get operating expense improvement as well out of that because today we probably picked those systems three times a day, and with these changes we will be able to do that potentially once a month. So we will have significant reduction in those things that could impact our pressure, but what we find is when we pick the system today we don't get very lasting benefit given the operating conditions.

And the other thing that we are really setting up for and you've got to remember that systems only really been out there you know 12 months or little over 12 months, but we have a wide variety of temperature and pressure that we see over a calendar year and what we want to do is set up a system that we feel we can operate safely, consistently and reliably 365 days a year. So we feel like we've got the right path forward and we will begin to implement some of those significant changes throughout the summer months.

Operator

We will take our next question from Craig Shere with Tuohy Brothers.

Craig Shere - Tuohy Brothers

A couple of quick ones, Don did I see correctly that you all are guiding a slightly higher cash tax rate expectations versus the fourth quarter guidance and what's driving that? And then Alan I had a quick question about the IDR forgiveness after that?

Don Chappel

Yeah, Craig I think there was a very minor change in cash tax rate and that's usually just a function of CapEx and taxable income, so I wouldn't read anything more into it than that, so its just a twig based on all of the other changes we made in our forecast.

Craig Shere - Tuohy Brothers

Okay. And Alan, on the IDR forgiveness, I mean frankly as a one time event as you fill in for commodity margin with your huge fee based growth CapEx pipeline a couple of hundred million dollars as an MPV is irrelevant, on a pretax basis. The question there would be is this really a one-time event as you are guiding to just over one-times, 1.03 I think in 2015 DCF coverage or could you envision a circumstance where this might have to be repeated?

Alan Armstrong

Well, I think that certainly describe the time where we might repeat it. You know, we saw conditions occur, but that’s certainly not our plans just right now. I think we have a fairly conservative plan out there.

I think it’s really just the result of the amount of heavy investment that we're going through right now on the capital side to take advantage of all these great opportunities and so you know, we are very much investing in to what we think is a great strategy, but that obviously has required a lot of equity issuance at WPZ to fund all that and that certainly put a lot of pressure on that coverage and you couple that of course with a rising gas price and a drastically lowering NGL prices and that’s a circumstances we find yourself for 2013.

None of that, from my perspective, overshadows the great growth prospects that we’ve got rolling on fee based business and I think our effort here is just to bridge in to that more fee based model that we move to and so I think in the future, there will be less variables as we become less and less reliant on the NGL margin, I think it would be less variables that would drive us to require us to do that. So I think that’s the way I would answer that.

Don Chappel

Craig, this is Don. I just remind you and the others on the call that again Williams own 68% of the LP units and the IDRs. If you look at our guidance, we enjoy 73% and I think of the cash flows out of WPZ in ‘13 and I think it goes up to about 76% by 2015. So the amount of IDR reduction that’s given back to others is call it 25% of the total 200, so really lion’s share of that is really spend and to the benefit of Williams just putting in a different pocket.

Operator

We will take our next question from Brett Reilly with Credit Suisse.

Brett Reilly - Credit Suisse

Can you just add a little bit more color on the OVM, lower volume assumptions, more in the ‘14, ‘15 timeframe recognize the issues you face today?

Alan Armstrong

Sure. We look at what's going on in ‘13, I think if you look back at some of the producers behind our system, they have openly said that they are scaling back 2013 drilling behind OVM as a result or in response to the current operating capacities that we have there. There is still probably a 100 million a day of volume that we are going to unlock over the next four to six months and we feel like we can bring the to bear -- we really feel that the producers are really focused on the drilling programs for 2014 and ‘15 and given the things that we are doing up there.

I think we are going to allow the producers and Williams to get to the levels of the previously forecasted, I think in ‘14 our volume projections not off that or and I know we have a little bit of step down in ‘15 but I really think that’s less, as probably less response to known information I think it's really just when we try to just project what we think to producers can actually do out of that area and given their volume profiles, really we’re just trying to forecast more what we see the activity been, but really we are going to get out off, we know we are going to have reduced volumes in ‘13 for the known things we have and we feel like we will have the system capable of movement the (inaudible) that we’ve had on our previous forecast and I think we stayed pretty close about level in ‘14.

Brett Reilly - Credit Suisse

Okay, got it. And with the additional capital of being spend in that area to resolve some of the bottlenecks today; is there an opportunity at all to recover some of that cost or is this all incremental capital just to get or satisfy the current contracts?

Alan Armstrong

That’s a good question and actually what we are doing is we want to make, we do have to do some of these thinks to make certain that we stay in compliance with some of our current contractual obligations for pressures in some of our field receive points, but we have that some discussions with producers to looking value trade that could even be, so maybe some acreage that is currently not dedicated or some other ways to get some improvements in revenue, as a result of the improved levels, so that we are going to see out there.

Brett Reilly - Credit Suisse

And then maybe looking to the Western part of the portfolio; any update on recontracting some of those commitments you have out there; so it’s more fee based versus commodity base?

Allison Bridges

This is Allison Bridges; certainly, we are proactively negotiating contracts with producers as they are coming due, and I think that they are interested in moving away from you know pure keep whole deal, so we are looking at different ways of contracting whether it would be fee based or based on type of gas or other items.

Brett Reilly - Credit Suisse

Okay. And then last one from me, the $2 billion bump in your growth capital opportunity side of the MBU level, is that really just the function of Bluegrass or is there few other moving pieces within there?

Don Chappel

Brett this is Don. There is quite a few moving pieces; the biggest change is the expansion of the skull to the Bluegrass system to include -- I think as Jim described fractionation, storage and export.

Operator

We will take our next question from Becca Followill with U.S. Capital Advisors.

Becca Followill - U.S. Capital Advisors

Back on the cash on page 79, the 2014 in the cash balance of $308 million at WMB level, how much of that is Canadian and how much of its domestic? And then just along with that, with the Bluegrass project expected to come online in ’15 I would expect the significant amount of CapEx since ’14. So how do you kind of bridge that gap at WMB level?

Don Chappel

Becca the bulk of that cash is Canadian cash. How do we punch that gap? Well it is certainly be from capital raising and it could be debt, could be equity we will determine that when we finalize our joint venture agreement and officially sanction the project.

Alan Armstrong

Becca a couple of things on that capital. I don’t think we have disclosed, I think Jim took a question earlier around board walk contributing the pipeline and thus contributing capitals, that’s not an accurate representation at all of the funding situation there. And I think the question was that, Jim didn’t say that (inaudible) question applies. And so there is a contribution of pipeline, but there is and there are some recognition of that in value, but the sharing of the capital obviously is a lot more in split on the pipeline as well. I would just say the big chunk of that, we’ve loved to be in the field constructing in ’14, but I will tell you we are more likely most of the construction dollars are actually be in ’15 and the project is scheduled to come on very late in ’15.

Becca Followill - U.S. Capital Advisors

And then on the Northeast, the segment data shows that I think a loss of $9 million in segment profit and the guidance is $100 million for the year, can you talk to us about how that ramps up? Is it ratable to get to the $100 million or is it more backend loaded?

Don Chappel

I guess I'm not -- I need to see, I'm not quite certain information, are you looking at -- just looking at the first quarter versus your annual guidance.

Becca Followill - U.S. Capital Advisors

I'm looking at the adjusted separate guidance within the PZ first quarter data book that's on page five, it shows guidance for Northeast G&P is a $100 million for the year versus -- sorry I've got so many pieces of paper out here, I think the first quarter was a loss of $5 million.

Don Chappel

Okay, let me see if I can get that in front of me.

Becca Followill - U.S. Capital Advisors

Okay. And then what you guys are looking then, Geismar in your call, your podcast, you talked about cost overruns at Geismar, can you quantify how big those are?

Don Chappel

I don't think we have disclosed that. I would tell you it’s still a little bit of a moving target at this point, but what we do know is that some of the estimations of the amount of steel and amount of wiring and so forth came in at a higher level. So you can see on page 61 there you can see kind of the new range for that, but I would tell you we are pretty far long on it in terms of the project itself and have a very good idea they require additional materials and labor on that. And so that’s reflected in there, but I don't think we've disclosed the actual amount on that, but again you can get a very good feel for that on page 61 in terms of the range there.

Frank Billings

Sure. And to your question on the first quarter versus the year guidance -- this is Frank again -- I think what you are seeing in the first quarter is we had some slip issues and we also had the rupture on the pipeline system in the Ohio Valley that hit some of first Q guidance. But if you look at our business up there, other than the kind of what we're experiencing [LBM] our business at Northeast Pennsylvania around our Susquehanna County supply of assets as well as our LMN business performing pretty well. And we should be seen good cash flow and segment profit coming out of those areas. So it's not back-end loaded, we should see it start to come back quarter-to-quarter over the rest of the year.

Becca Followill - U.S. Capital Advisors

Thank you. And the last one is on IDR support. You talked about up to $200 million. That’s really going to fluctuate depending on how much WPZ needs. So as we model that, do we look to you guys running to target throughout the quarter a 0.9 times coverage or what kind of coverage would you get support to your -- how much cash to get to what kind of support level of the IDRs?

Don Chappel

Becca, I think we've maintained some discretion over that, but we have 105 coverage in the first quarter. We will look at what the second quarter results are on a year-to-date basis as well as our outlook for the balance of the year and we will make a determination. I wouldn't expect that necessarily we won't try to put each quarter exactly where we would expect the full year to be, but we will look at kind of year-to-date actuals as well as the outlook for the year and determining how much to waive each quarter to get to the full year effect that we're looking for.

Becca Followill - U.S. Capital Advisors

The $200 million only applies to ‘13, not to 14, is it correct?

Don Chappel

It is for the next four quarters.

Becca Followill - U.S. Capital Advisors

Four quarters, okay.

Don Chappel

So it would be available as you can see right now we're not forecasting that we would need that in ’14, but it is available. Our guidance includes a waiver for each for the next three quarters. So if you look at Q2 through Q4 and actual payment for Q4 would extend into early ’14, that’s what's in our guidance model. However, the commitment is up to 200 over the next four quarters and we are targeting a 0.90 coverage ratio for 2013 and again we didn’t model any direct waiver beyond the next three quarters, even though we mentioned four quarters potentially.

Operator

Our next question comes from Carl Kirst with BMO Capital.

Carl Kirst - BMO Capital Markets

I think most of the questions have been asked, but may be just couple of cleanup and first just to clarify the projected spending on Bluegrass that anticipates the 50-50 structure or is that being should more 100% at this point?

Alan Armstrong

It's in a 50%, Carl, but it's not in our guidance, it's only in the disclosure projects that are beyond the guidance set of projects.

Carl Kirst - BMO Capital Markets

And then lastly, if I could just clarify and appreciate the extra information on Gulfstar, this is with respect of 2014 WPZ guidance. Is it possible to clarify may be Gulfstar is the only major project of now, but is it possible to clarify of the reduction in 2014 segment guidance and so understand this is segment not DCF. How much of that came from a collective shift in service dates?

Rory Miller

I am not sure I have that. This is Rory. I am not sure, I've got that. If I have to guess and say, it’s around half of it. And then the other biggest driver would be the other item that I mentioned is about going to our rate case and our reserve rate and just [Dina] was a little lower rate base, but those projects is coming extremely well, I was down last week and looking at the whole project looks fantastic, it's went a lot of this projects very complex and we think it could be a couple of months delay on there, so that is about a half of that change for 2014.

Carl Kirst - BMO Capital Markets

For 2014 right.

Rory Miller

And then after that of course there is no effect. There is no impact to any other revenue streams coming off then.

Operator

Our next question comes from Selman Akyol with Stifel Nicolaus.

Selman Akyol - Stifel Nicolaus

Most questions have been answered. In terms of guidance, do you have turnaround schedule for this quarter?

Randy Newcomer

This is Randy Newcomer. Right now we are planning, we’re finishing up the detailed planning around the turnaround and integration of the expansion that will happen -- tie in the expansion will happen during turnaround. By now we are anticipating of bringing that down for maintenance and for tie-in of expansion latter part of August. So it will be the third quarter kind of mix.

Selman Akyol - Stifel Nicolaus

What would you anticipate being down at that time?

Randy Newcomer

We are planning right now putting about -- we are having forecast is about 50 days there.

Selman Akyol - Stifel Nicolaus

50 days, okay, thanks. And then also in the quarter in terms of production given the strength of margins I think you were at 246 million pounds this quarter compared to the prior quarter of 261. I would have thought you have been little bit higher than that given the strength in the market any comment there?

Alan Armstrong

Yeah couple of things. One is that if you recall the price of propane is down very considerably in first quarter. Propane is actually preferred of these stocks during that time and so we ran heavy on (inaudible) which makes less ethylene makes more propylene and actually higher profitability so that’s part of the reduction in the volumes in the first quarter. The other one was we had some furnace issues that kind a kept this one furnace short for most of the quarter and in terms of sensitive result.

Selman Akyol - Stifel Nicolaus

And then just more of an industry question, I guess we have been hearing that ethane rejections have been running at about a 175,000 barrels per day does that seems like the correct number could be higher than that form what you see?

Alan Armstrong

I would say from vantage point that we have the areas that we have, I would say that’s probably fair of the ethane that’s positioned to be recovered today, obviously if you included all the ethane that’s being rejected up in the Northeast it would be considerably larger than that but I don’t think that anybody is really counting that because it hasn’t been in the market previously. But I do think that looking if you track propane volumes and then track those relative to ethane volume you can get pretty good idea even though as people reject ethane as I am sure you are aware does lower propane recoveries a little bit and so I think that’s a good indicator but I would say form our vantage point that 175 is probably in the ballpark might be a little more of that but that’s probably pretty close estimation.

Selman Akyol - Stifel Nicolaus

Alright and then finally just for clarification purposes, you guys talked about your forecasting based on ethane rejection. Is that at the same level going forward for the next several years or do you have that declining in the forecast?

Alan Armstrong

No we have the same. You know really when we estimate that for us we are basically just looking at our planned economics and our variable cost economics and determining what we are going to do, obviously not determining what the whole market will do and as I mentioned earlier I think there are a lot of contracts structures out there where there might be percent of what's with contracts where the producer might be, sorry the processor might be driven economically to continue to recover because they don't have the shrink risk or there are take for pay or ship for pay obligations where the variable decision if you will lowered so they will take a lower, it doesn't have to pay the transportation fractionation anyway therefore they will take loss on the ethane and so I think those are driving some of those decisions but for our decisions we basically are forecasting that we will be in full rejection at all of our plants throughout the period. Now as I said earlier I can assure you that will not be the case that there will be periods where we are up a little bit as margins pop up, we will take advantage of those but as it’s modeled in our plan right now it isn't for rejections.

Operator

We will take our last question from Helen Ryoo with Barclays.

Helen Ryoo - Barclays

Most of my questions are answered but just on ethane rejection, is any of your people contracts on your processing funds have - on those contracts is there any must recover ethane volume or could you just sell them at methane price when you have that negative spread.

Alan Armstrong

Yes, well really the way that words from a contract standpoint is we just replace any BTUs that we take out. So if we didn’t take the ethane out, we just leave the ethane in, we don’t have anything to keep a producer hold on. So we're not really exposed on that provided that we reject it we only have to replace any BTUs that we take out.

Helen Ryoo - Barclays

Okay, and then, so I guess the full ethane rejection you saw in the quarter, it's mainly affecting that the overland in the Conway fractionaters?

Alan Armstrong

That’s correct. Now the Overland pass line of course collects the ethane from our [Peance] and our Wyoming plant so that Opal, Echo and the Willow Creek facility and those are large producers of our equity ethane barrels. That's a very large where equity ethane barrels and so those are in rejection. But remember that those going over (inaudible) they are not actually fractionated at Overland Path, they are not actually fractionated at Conway. They are fractionated by [One Oak] and their fractionation facility in the mid-continent typically. So those are two unrelated issues. I would just Conway is seeing the impact of rejection in the mid-continent. Most of its barrels and its NGLs come in from barrels that are produced in the mid-continent area.

Helen Ryoo - Barclays

Got it and do you have any take or pay type contract on the [openland] pipeline?

Alan Armstrong

No, we do not.

Helen Ryoo - Barclays

Okay, great, and then just a follow up work, could be a clarification. I guess do you change your Marcellus gathering throughput expectation for 2015 compared to previous quarter data book and if so, how much of that is driven by I guess the spending reduction in the (inaudible) amount that was mentioned?

Unidentified Company Representative

Sure. Be just a second, follow-up my notes.

Operator

And that concludes the question-and-answer session. I would like to turn the conference back over to Mr. Alan Armstrong for any additional or closing remarks.

Unidentified Company Representative

Let me finish the answer to that question. There is a few things that went on and the data book to data book. To your specific question, the largest volume reduction was probably around [Laura Mountain] midstream and what we did there as we have basically forecasted given that’s a dry gas system at this point and really anticipating Chevron switch their drilling program into the weather area over the next few years. Pulled out volume out of that area, but we also pull back some capital as well, so it was a decision to reduce the capital that associated with some of that volume growth. In ABA, what we have did is we use to prior reporting we actually had some volumes that were coming out of the Williams zone system and then flowing into the laser system even though it was the same MCF and we were showing those as being two volumes. So in the current data book we’ve made a changed to pull that out and we are also doing some recontracting on that business. So it was been accounted for because we are getting a fee from Williams and then we were having a fee from laser so to make that change, so that was probably the two largest ones and then obviously we did a little bit of a modification in Ohio Valley which I mentioned earlier.

Alan Armstrong

Okay. This is Alan Armstrong, go ahead and close out the call. Thank you very much for your continued interest in the company. We remain very excited about the environment land as we see the infrastructure requirements to build out for this very low cost resources here in North America and we are very lucky to be so well positioned in locations we are to be a major player and providing this infrastructure and excited to see the kind of very long term growth trajectory we have not just a flash and pan kind of the really long term growth trajectory is kind of come off this major investments that we are making here, both last year and this year and then to ‘15. So again thank you for joining us, and we look forward to see you on May 21.

Operator

And that concludes today’s teleconference. Thank you for your participation.

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Williams Partners (WPZ): Q1 EPS of $0.50 beats by $0.01. (PR)