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Executives

Sharna Reingold – IR

Don Chappel – CFO

Alan Armstrong – COO

Analysts

Stephen Maresca – Morgan Stanley

Sharon Lui – Wells Fargo Securities

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Gabe Moreen – BAS-ML

Emily Wang – Raymond James & Associates

Al Meier – Zimmer Lucas

William Adams [ph] – Fair Comps [ph]

Williams Partners L.P. (WPZ) Q3 2009 Earnings Call Transcript October 29, 2009 11:00 AM ET

Operator

Good day everyone, and welcome to the Williams Partners L.P. third quarter 2009 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 Sharna Reingold. Please go ahead, ma’am.

Sharna Reingold

Thank you. Welcome to the Williams Partners third quarter 2009 earnings call and thank you for your interest in the company.

Today, we will be reviewing the third quarter 2009 results of Williams Partners. Don Chappel, our CFO, will review the financial results of the Company, then Alan Armstrong, our Chief Operating Officer, will review some of the operational results of the partnership. After their remarks, we will open the line for any 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 Web site, williamslp.com.

Please read slides two and three. Within the presentation there are forward-looking statements about future expectations and operations that are subject to various risks and uncertainties, which are disclosed on those 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 Web site, williamslp.com.

With that, I'll turn it over to Don.

Don Chappel

Thanks Sharna and good morning. Let us turn to the next slide please; slide number 5 headlined strong 3Q results. I will just hit a couple of headlines and we will dive deeper into the results in just a moment.

Net income and DCF were up 121% and 97% from the second quarter, so we were delighted with the rate of improvement. NGL prices and margins both improved sharply. Wamsutter and Discovery cash distributions were increased and our cash distribution coverage ratio came in at 1.8x or pro forma 1.48x if we were to assume that the benefit of Williams IDR waiver were not available. Lower ’09 NGL margins compared with the record high 2008 NGL margins drove lower year-over-year results.

Let us turn the page and take a look at slide number 6, partnership results, the slide presents a comparison of net income between years. Total net income is lower by about 8% and 43% respectively for the third quarter and the nine months versus 2008. However net income per LP unit for the third quarter of 2009 was actually $0.04 higher than the prior year due to an increased allocation of net income to the LPs as a result of Williams 2009 IDR waiver. We will discuss the major performance drivers in a couple of slides for now I will just point out that although net income is down compared to 2008 it has improved significantly throughout 2009 and is up 121% over the second quarter.

Let us turn the page to slide number 7 and look at our DCF numbers, slide titled distributable cash flow per LP unit. For the third quarter DCF per LP unitholders increased $10 million between years or about 20% and for the first nine months DCF per LP unitholders decreased about $19 million or 13%. The 2009 amounts were significantly favorably impacted by Williams IDR waiver, which decreased the amount of DCF allocated to the general partner. Although DCF is also down compared to 2008 for the year-to-date period, it has significantly improved throughout 2009 and in fact it is up 97% over the second quarter of 2009. The partnership’s cash distribution coverage ratio as I mentioned earlier is 1.8x which includes the IDR waiver without the benefit again we would have been nearly 1.5x. In the Appendix we have detailed more of the major drivers.

Let us turn the page please to slide number 8, recurring segment profit. This slide presents our recurring segment profit amounts. You will see a $5 million nonrecurring adjustment for 3Q09 related to additional insurance receipts from the Ignacio fire in November 2007. For the third quarter lower NGL margins at Four Corners drove the lower results in the West partially offset by lower O&M expense also at Four Corners. The lower O&M expense was driven by lower system and other product imbalance losses.

Equity earnings from Wamsutter were higher in 3Q09 versus 3Q08 due to higher allocation of Wamsutter’s net income to us in 2009 compared to 2008. Equity earnings from Discovery were also higher in 3Q09 versus 3Q08 however Discovery’s third quarter ’08 equity earnings were impacted by hurricane-related damages in downtime. For the year-to-date comparison, lower NGL margins at Four Corners and lower equity earnings from Wamsutter were the key drivers of lower results in West similar to the third quarter lower O&M expenses at Four Corners partially offset the lower NGL margins. At Wamsutter higher volumes are partially offsetting the impact of lower NGL margins.

Additionally, lower equity earnings from Discovery drove lower segment profit for the Gulf segment. Reduced equity earnings were due to lower NGL margins and lower plant inlet volumes at Discovery and its producers worked to recover from the 2008 hurricane damages. However Discovery was fully operational for the third quarter of 2009, had strong volumes, and paid us $11.1 million in cash during the month of September.

Let us turn next to slide number 9, the graph of distributable cash flow. This slide graphs the history of our DCF starting in the third quarter of 2007 and through the record NGL margins in 2008 and finally through the challenging fourth quarter of 2008 and the first half of 2009 and now into the third quarter where we see strong recovery. From a historical perspective our third quarter 2009 DCF was strong compared well to third quarter of 2008, a record quarter even though NGL margins are still only around half of what they were in 3Q08. In the Appendix in slides 19 and 20 we presented a clear picture of the major drivers for the change in DCF between 2008 and 2009. The drivers are largely consistent with the business drivers discussed in the previous slide.

With that I will turn it over to Alan.

Alan Armstrong

Thanks Don. I will start here on slide 11. We did have a terrific third quarter with no hurricanes and business interruptions. We were able to post some great operational and financial results from each sector of our businesses. Our gathering volumes and NGL production show a steady growth in our business since 3Q of 2008.

As Don pointed out in slide 9, our DCF in the third quarter was $62 million in spite of much lower per unit NGL margins that we realized in third quarter of 2008. In fact we were only $14 million below our third quarter 2008 DCF despite NGL margins for Four Corners being 48% lower and Wamsutter margins being 44% lower.

Based on our results year to date and the pricing environment we are seeing in the fourth quarter, we have raised our 2009 guidance range to $170 million to $190 million which is significantly higher than our previous guidance range which had $170 million at the upper end of that range. We have also included an outlook for 2010 based on the current forward strips for crude and gas and I will provide some more detail when I get to that slide. Lastly, I will talk briefly about some of the growth opportunities that we are seeing next year some of which will lower our run rate operating cost and some that will continue to increase our volumes.

Moving on to slide 12, I think this slide shows a really great story about the strength of our business and I think the real story here is that volumes at Four Corners are steady and volumes at Wamsutter and Discovery continue to grow. If you look at our gathering volumes at Four Corners comparing 3Q08 to 3Q09 you can see that volumes have decreased 2% while volumes at Wamsutter increased by 7%, and for Discovery I think you need to focus on 2Q09 to 3Q09 because that is where you start to see the impact of the 75 BBtu/day coming online from Tahiti that did start up in the second quarter, so we did see some of that improvement in the second quarter of 2009 but really came online full bore here in the third quarter.

For both equity gallons and total production, each area has a nice trend of growth. I would point out that the small bit in the second quarter of 2009 at Four Corners was related to the pipeline rupture that we discussed in great detail last quarter. We have not seen the big volume declines that many had forecasted in our western assets. In fact, Wamsutter’s growth has been in the phase up very low rocky gas prices during the quarter and yet our well connect teams are very busy in the Wamsutter area and at forward [ph] prices for this area, we expect to see even higher well connects in the future.

Moving on to slide 13 now, this has got a picture of our NGL margins and I think this graph really helps drive home the point about comparing our third quarter ’09 DCF to 3Q08. As I mentioned earlier, we talked about the $14 million lower and here you can see how dramatically lower our margins were versus 3Q08 yet we continued to perform very well and well over our coverage ratio. You can see also here that Discovery gross processing margins were 37% lower but you can also see that we have had a consistent recovery throughout 2009.

In fact, we have seen a strong recovery in oil prices of 58% since first quarter of 2009 and that combined with a 31% decrease in gas prices both of these factors have had a very positive impact on our margins this year but to the contrary we have seen the NGL to crude relationship slip since the beginning of the year and the basis differential between the West and Gulf Coast has narrowed both having a negative impact on our western margins. However I would like to point out that we have seen the NGL to crude relationship level off and it continues to show signs of strengthening into 2010 and the reduced bases will impact margins in the short term but will support volume growth in the long term which is healthy for our business over the long haul. I would also like to mention that slides 22 and 27 in the Appendix have a lot more information on both our volumes and margins by quarter.

Moving on to slide 14 now, lots of information on this graph but I will draw your attention to the two columns in the middle labeled current low and current high. Those two columns represent the new guidance range for 2009. As I mentioned earlier, we have raised our previous guidance range, so the previous high range of DCF of $170 million is now in the low range of our current guidance compared with the new high of $190 million. This raises our mid point by right at $25 million and our per unit margin increased $0.06 per gallon at Four Corners over the second quarter and $0.04 at Wamsutter.

You can also see we have the current coverage ratio in the range of 1.2x to 1.4x for the year which is really outstanding compared to the first two quarters of 2009 and importantly we have cleared the one-time coverage ratio even if we had continued to pay the incentive distribution rights to the GP this year. So the story is that our fundamentals in terms of volumes and lower cost have really improved this year and we are seeing the commodity prices starting to rebound, which is giving us strength in the future.

Moving on to slide 15 here, this slide shows the performance we would expect from our base business in 2010 at forward market prices for crude and natural gas in 2010. As you can see we have included a range of $175 million to $210 million of DCF and the big driver on the range here is the assumptions we are making regarding the NGL to crude relationship. So all that we did here is we took the October 19 strip for 2010 calendar 2010 of this crude oil and these various regional gas prices and then we applied the NGL crude relationship of 50% to 55%.

As I mentioned earlier, we have seen a leveling off of the relationship in the second half of 2009 as gas prices have rebounded and the crude to gas ratio has gone lower. We are also seeing a strengthening of gas prices in 2010 with a ratio of 13:1 compared to 3Q09 when the ratio was closer to 20:1. So with the gas price recovery that the market is showing we would expect to see improved NGL to crude relationships again as gas prices strengthens. This outlook is just against the base business and does not assume any meaningful contribution from growth CapEx in 2010 and I will speak of some opportunities that will contribute beyond 2010 in the next slide.

So here on slide 16, as we continue to build a large cash balance at WPZ we are identifying many highly accretive investment opportunities. As we look to investment opportunities throughout next year we see many opportunities to either lower our cost or increase our volumes. At Wamsutter we have the option to purchase two large compressors late next year that are currently on lease agreement and the purchase of these compressors will cost approximately $3 million yet decrease our annual O&M cost by $1.2 million on a continuous basis, so very nice turn on our dollars there. Additionally we have several opportunities in the Four Corners area for price reduction projects at Four Corners that will also lower our run rate on our O&M costs later in the year and several similar opportunities like we have in the Wamsutter that I mentioned.

At Discovery, in addition to the new volumes from Tahiti, we expect to see volume increases later this year and throughout next year that will continue to increase our volumes and these volumes where we are not spending additional capital dollars. So these are a long list of connects here where the producer spending the capital connect to us and you can see these incremental volumes that are scheduled on this slide.

As our NGL production has grown dramatically at Discovery, we see an opportunity to expand NGL takeaway infrastructure in a way that adds value to Discovery and its customers. If you have noticed the amount of NGL production increased that we have seen at Discovery is very dramatic and almost doubling from where we were last year. So a lot of that is coming from some of these very rich deep-water volumes like Tahiti and as a result of that we have got some exciting opportunities to add value to both us and our customers.

We also have several potential opportunities as we move into 2010. The Williams TXP4 project at Wamsutter is progressing with an expected start up in November of 2010 that will have a positive impact on both fee and commodity revenues. WPZ continues to monitor this asset as a logical drop down opportunity once the construction risk is mitigated from this project and the cash flow exists. I might also note that that project continues to be well under its original budget as costs have subsided dramatically from the hyperinflation mode that that project was originally estimated in. We also have identified a few small bolt-on acquisitions that would also grow the business beyond 2010 and of course we remain interested and exposed to many large drop down acquisitions from WMB.

In summary here on slide 17, it was another solid quarter for WPZ with a 97% increase in DCF from our second quarter. Our per unit margins increased in the third quarter and we saw increased distributions from both Wamsutter and Discovery. We have raised our 2009 total year guidance $170 million to $190 million and we have lots of growth opportunities both planned and potential that we are seeking in 2010 and beyond that we will either lower cost or increase our volumes. We are also looking at the possibility of adding more hedges in 2010 to reduce our commodity exposure and as you will know the pricing if you backed into the pricing that we have got on the previous page, we are getting pretty near that on the NGL prices right now in the forward strips.

Finally we provided our 2010 outlook based on our current forward markets for crude and gas of $175 million to $210 million of DCF and that gives us a 1.1 to 1.3 coverage even with paying out the IDRs to WMB. So with that I will turn it over for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We will take our first question from Stephen Maresca with Morgan Stanley.

Stephen Maresca – Morgan Stanley

Good morning everyone. My question is to do with Rockies basis and we have seen it obviously come all the way down and in some cases be a little bit of a premium to Henry Hobbs [ph] and I wanted to know if you could talk about how this impacts WPZ from a cash flow perspective?

Alan Armstrong

Sure. It comes right out of the big portion as you know of our volumes and our margins as produced in both Rockies and San Juan that is the largest portion, so that is the area that we are exposed to, what we have seen the benefit from that has offset that has been our lower NGL transportation rates which were cut in half when we moved form MAPL last year over to Overland Pass and so that has been a pretty large offset to that basis differential. But it certainly comes right out of our bottom line when we see our gas prices increase there in Wamsutter.

Stephen Maresca – Morgan Stanley

And then you have got –

Alan Armstrong

I was going to say you can see we had a pretty flat basis differential in the third quarter. So you would not expect to see much difference than that for the fourth quarter particularly if you are looking at first to month rather than spot pricing.

Stephen Maresca – Morgan Stanley

Got you. Two other things, you talked about you have not seen the big volume decline that we made, many may have expected given the low gas prices that we had for a while, can you talk to why you think that has happened?

Alan Armstrong

I think there are several reasons. First of all in the San Juan basin that is just such a big basin and most of our wells are fairly old there I think 85% of our wells there are older than five years so the decline rate on those wells is pretty low to start with. So even when we see a falloff in drilling we just do not see it move very fast one way or the other. In the Wamsutter which is probably more highlighted as an area that was expected to decline, we have got very large customers in that area, BP, Anadarko and Devon are by far the three largest customers with BP being a lion’s share of the production there and they have a very long-term perspective on gas prices and they have a fairly large position in (inaudible) which keeps them producing into that capacity long term. So we have got a lot going forward having some of those bigger players who have a little longer-term perspective on things.

Stephen Maresca – Morgan Stanley

Okay thanks. Finally, quickly given that you guys are back on your feet now, is it fair to assume that the IDRs will be reinstituted for 2010?

Don Chappel

Stephen, this is Don Chappel, we have certainly waived the IDRs during a period of stress in early 2009 and certainly with a forecast we see no reason to waive again.

Stephen Maresca – Morgan Stanley

Okay. Thanks a lot for the time.

Operator

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

Sharon Lui – Wells Fargo Securities

Hi, good morning, just wondering what your thoughts are in terms of the drivers for the improvement the NGL to crude ratio for 2010?

Alan Armstrong

Oh sure. Primarily it is the fact that the crude to gas ratio is lowering. So in other words we certainly track those relationships and over time if you track the crude to gas you will see when crude to gas is very high like it was in the third quarter of 20:1, you will see that ratio weakening partly because ethane prices are more sensitive to gas prices and so when gas is low you see low ethane prices which brings that ratio down. You will see in our forecast we have got a much higher gas price about $3 higher actually in our basins forecasted in the 2010 or actually it is not our forecast it is the market and as a result to that we are seeing that crude to gas ratio slip down to 13:1 which means that you will see at least if historical relationships hold, you will see that come, you will see that NGL to crude relationship strengthen.

Sharon Lui – Wells Fargo Securities

Okay and when I just see your 2010 outlook, are you assuming I guess volumes stay pretty much steady with current volumes?

Alan Armstrong

We are seeing continued growth in Wamsutter and Discovery as I mentioned in the call and we are seeing slightly lower volumes in the San Juan Basin.

Sharon Lui – Wells Fargo Securities

Okay, great, thank you.

Operator

We will take our next question from Andrew Gundlach with Arnhold and S. Bleichroeder Advisers,

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Good morning and congratulations on a really superb quarter. It sounds like Alan and Don that you are starting to think about how to grow WPZ again, you are talking about drop downs and what they might cost, can you give us a little flavor as to how you are thinking about paying for them and what price the units make sense to be issued given the return to the assets that you are thinking about?

Don Chappel

I think we felt that WPZ’s yield was abnormally high during 2009. We are seeing a nice recovery. I would say from a drop down perspective Williams like to sell these quality assets at fair value and certainly WPZ has a desire to buy assets and create value for unitholders as well. So it will take those two coming into synch and I cannot give you any guidance in terms of exactly what that formula looks like but certainly we are much closer to being able to grow through drop downs than we were a quarter or two ago. So I think directionally we have come a long way and at this point we are not prepared to offer any guidance in terms of timing or how we might finance that.

Alan Armstrong

Added to that we certainly have a very fine cash balance that we have built up and that continues to build on us.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Right but you see that the main driver of growth here being the WMB assets or do you also see opportunities in distressed MLP land?

Alan Armstrong

I think we have enough opportunity right now in and around our existing footprint either through organic growth or through small acquisition, small asset acquisitions in and around our assets that I think we have got plenty of opportunity that is probably at a premium to what the auction market might offer to us.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

I understand but Don given your comments here, can you put that into context with the term loan and the June 11 maturity, $150 million, how do you – the cash balance, the balance sheet, the drop down for growth strategy, can you give a sense of how you are strategically thinking about all of that over the next two years?

Don Chappel

Andrew, we are not prepared to offer any guidance on that subject. I would say that again we were comfortable with our current financial position. We have confidence we can refinance that debt. I think it will be a function of the opportunities as Alan pointed out, we have some organic growth opportunities perhaps there will be some asset acquisition opportunities and then we have Williams drop down so I think it will be a facts and circumstances situation depending on what opportunities are available to us.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Okay thanks for the comments and congratulations on really an excellent quarter.

Operator

We will go next to Gabe Moreen with BAS-ML.

Gabe Moreen – BAS-ML

Good morning everyone. In terms of the maintenance CapEx shifts going on both for 2009 and then I think guiding a little bit higher on maintenance CapEx in 2010, I do not know if Alan you can kind of speak to some of the drivers behind that?

Alan Armstrong

Well, a piece of that Gabe is obviously well connects, not a tremendous amount of change there. We do have some projects in the Four Corners area where we are placing some older, less fuel-efficient compression that is in our maintenance as well and going to stop, it has had some pretty high maintenance cost on it over the last couple of years and we are replacing some of that. So we do have some higher costs there. We also have some pretty – we are expanding some wells in the Conway area as well. So we have got pretty robust not dramatically but maybe on the maintenance capital maybe about 15% to 20% up on maintenance capital next year from where we look like we are going to close the year out this year.

Gabe Moreen – BAS-ML

Kind of sounds like some of that stuff might be 2010 specific projects?

Alan Armstrong

Yes, that is 2010, I am sorry, that is what is driving 2010, yes.

Gabe Moreen – BAS-ML

Okay. By now I guess the philosophy behind hedging, I guess let’s say that the NGL prices do get to the level, they are close now, they get to that level that is assumed in your 2010 budget, I guess what is the level of hedges would you look to lock in as a percentage of your equity volume?

Alan Armstrong

I think in the past we have held that at under 50% but there is a reason for some of that. For instance, on the Discovery system, those barrels do not trade to Bellevue [ph], so we have historically tried to make sure that our hedges are effective and we do not have any mark-to-market issues and as well we have quite a bit of production in the Four Corners area that is sold locally and so that even though it prices off of Bellevue it is not direct enough to be able to get an effective hedge there. So that is limited the amount that we have actually hedged is the location of sales for that product. So that generally will keep us somewhere down in the 50% range or below.

Gabe Moreen – BAS-ML

Okay and then the final question I guess the higher level question in terms of the TXP expansion at Wamsutter I did not get a chance to see if BP had anything to comment on there Wamsutter development plans during their earnings release two days ago but are you seeing I guess BP and other producers around there still committing I guess to drilling up Wamsutter relative to your expectations let us say a couple of quarters ago and I guess also if one TXP report comes online I assume there is going to be a decent amount of (inaudible) processing capacity, how are the volumes going to get allocated between that expansion and versus the I guess (inaudible)?

Alan Armstrong

The way that agreement works there will not be any allocation, it will just be – the same revenues will still get split between the A, B and C shares and so in other words any excess revenues over and above that would be getting split to the C shares. So it is another way to say that what is really going to shift there Gabe is the fact that a lot of – today WPZ has about 68% of the C shares and WPZ share will go down dramatically when those C units come in. So it will be the split of that excess revenue but there will not be any physical allocation of volumes. Having said that there is quite a bit of excess volumes that we are sending over to Anadarko’s Patrick Draw plant and to CIG Rawlins plant today that will immediately come back into our system.

Gabe Moreen – BAS-ML

Okay and then in terms of the Wamsutter development plan that you are seeing out there from others –

Alan Armstrong

We are still seeing very steady in fact we have got a very busy schedule ahead of us here towards the end of the year getting a lot of wells connected out there so we are seeing quite a bit of production, we have seen some drilling out there where the completions have not occurred, so there are a lot of wells that have been drilled not completed but we are starting to see that turn around as well and starting to see our well connect request ramp up pretty dramatically.

Operator

(Operator instructions) We go next to Emily Wang with Raymond James & Associates.

Emily Wang – Raymond James & Associates

Hi guys, great quarter My question is on Discovery on your gathering volumes you guys posted about 569 BBtu this quarter, it seems like you guys are coming close to the max of say 600, can you talk a little more about the proportion of traditional connected versus off system volumes and will you guys see that proportion changing over time? At what point would you consider expanding the capacity of the facility?

Alan Armstrong

Great questions. First of all the plant capacity is 650 million a day we have been able to push that through up from time to time and what we would do is we make a lot more margin overall in our system from the traditionally connected over the deep water volumes than we do the off system processing volumes and so we would just push those volumes out and so our margin would expand before we would think about building any new capacity. So in another way the off system processing probably would not warrant any new expansion and we would just be pushing those volumes out.

Emily Wang – Raymond James & Associates

Okay, great and also can you talk a little bit more about the NGL pipeline, you talked about a lot of the deep water discoveries being very rich, how much incremental capacity do you think that you guys will need say over the next few years to serve even up growing Gulf production?

Alan Armstrong

On the NGL side specifically?

Emily Wang – Raymond James & Associates

Yes.

Alan Armstrong

We think we can handle the majority of that with our existing Paradis fractionator and we have got some de-bottlenecking that we could do there as well if we needed to. So we think we could pretty well handle that at our Paradis fractionator. What we are looking to do because we have so much bigger volume now, we are looking to expand the markets and be able to have more options for our production on the outward of Paradis so that we are getting price advantage rather than price disadvantage as we are seeing today. So that is really what we will be doing on the NGL takeaway.

Emily Wang – Raymond James & Associates

Okay, got it. And switching gears over at Wamsutter, how many wells right now have you seen drilled but that are not completed just yet?

Alan Armstrong

I do not have an exact number of – what we did is the request. We have just noted that we have gotten a lot of them that all of a sudden are being completed. So I do not have an exact number on what was drilled and not completed.

Emily Wang – Raymond James & Associates

Okay, great, thank you.

Operator

We will go next to Al Meier with Zimmer Lucas.

Al Meier – Zimmer Lucas

Good morning guys. Just in terms of the volumes you have right now at Wamsutter, how much is being pushed to Rawlins and the Anadarko plant?

Alan Armstrong

I think our spillover right now is just right at about $120 million a day I think is what our spillover is right now between those two plants.

Al Meier – Zimmer Lucas

Okay and then just in terms of the Four Corners, you talked about doing some pressure reduction projects, kind of what size OpEx or CapEx would that be and what kind of returns would you be looking to get for that?

Alan Armstrong

You can see that one is least buyout there Wamsutter and you can see that is a payout of about two and half years. So those returns on before tax basis are probably in the 35% to 40% return basis. So they are relatively small but pretty powerful at the same time.

Al Meier – Zimmer Lucas

Got you and just lastly I think Overland Pass your parent has an option on that so you buy that out by the end of November I guess of next year, can you talk a little bit about how that could fit into WPZ and your thoughts around that strategically, I know you have some Conway storage, so.

Alan Armstrong

We liked that asset (inaudible) and so we make up a majority of the volumes on that system today and it certainly is impacting the demand for storage at Conway where we have certainly seen record levels of demand for storage there at Conway. So we think it brings a lot to that area but we are certainly only interested if it makes economic sense and makes a high enough return and so we will wait and see what we know with a lot more knowledge between now and next November about both costs and volumes on that system.

Al Meier – Zimmer Lucas

Okay and just in terms of your cost of capital, if I look at it kind of on a 50/50 basis today and where your bonds are trading, I come up with around 10%. Does that sound reasonable to you in terms of what a cost of capital is, not necessarily where you would buy an asset?

Alan Armstrong

I think you are in the right zip code. We typically do not comment specifically on our cost of capital for competitive reasons.

Al Meier – Zimmer Lucas

Okay, thanks guys.

Operator

We will go next to William Adams [ph] with Fair Comps [ph].

William Adams – Fair Comps

Good morning guys, great quarter. Wanted to ask about the investment at the TXP4 at the WMB level, how much did that project cost?

Alan Armstrong

I do not know that we have disclosed the exact or that WMB has disclosed the exact number on that.

William Adams – Fair Comps

Okay, I was just –

Don Chappel

I am sorry, I just got reminded, we did in the press, 233 is what the new number is on that. It was around 260 earlier.

William Adams – Fair Comps

Okay, that is there expected cost?

Alan Armstrong

That is correct.

William Adams – Fair Comps

Okay and then you mentioned I was just looking at your guidance number, I guess it is primarily the Four Corners and it looks like it is kind of conservative and I assume that it implies some down volumes for next year, can you maybe give a little more color on that?

Alan Armstrong

In the Four Corners area?

William Adams – Fair Comps

Yes.

Alan Armstrong

This year we have seen lower well connects in the Four Corners area and so that benefits us now in terms of lower maintenance cost. It certainly comes back to us in the following years when we have not connected those wells so what we are seeing there is really just an impact of lower well connects in 2009. We do think at the forward price there for 2010 that that will certainly encourage drilling there if that pricing hangs in there. We would certainly expect to see volumes pick up, drilling pick up and well connects pick up that would impact us in 2011 volumes.

William Adams – Fair Comps

Okay. I thought you made the comment you thought the volume to be down next year in Four Corners.

Alan Armstrong

I did and they will be because of the 2009 well connect. This year’s well connects have been down which means that our 2010 actual flow in volumes to be down but we would hope and expect that with the prices that are in the current forward strip we will see that drilling pick back up and we will see the well connects continue. There is certainly plenty of resource out there and plenty of drilling opportunities out there.

William Adams – Fair Comps

Do you see your growth spending next year be in line with your growth spending for this year, could you give us a little more color on that?

Alan Armstrong

I think we will probably see it potentially be higher for next year just given the number of opportunities that we have got. We have certainly been conservative this year in not committing to any growth capital knowing that we would have that cash balance to use if margins dipped lower and so we have been pretty conservative in planning for growth CapEx this year but going in with the cash balance we have I would certainly expect our growth CapEx to be increased next year.

William Adams – Fair Comps

Okay great. What was your cash balance at the end of the quarter?

Alan Armstrong

I will tell you that in just a minute, 102 was our cash balance at the end of the third quarter.

William Adams – Fair Comps

Okay, thanks for your time.

Alan Armstrong

Thanks.

Operator

There appear to be no further questions at this time. I will turn the conference to Mr. Armstrong for any additional or closing remarks.

Alan Armstrong

Great. Thank you all very much for joining us today. We are excited about the quarter, we are very excited about both the way our volumes are picking up and the business is performing and we are excited to be refocusing our attention on growth opportunities as we look into 2010. So thank you for joining us.

Operator

That does conclude today’s conference call. We thank you all for your participation.

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Source: Williams Partners L.P. Q3 2009 Earnings Call Transcript
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