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Access Midstream Partners, L.P. (NYSE:ACMP)

Q4 2013 Results Earnings Conference Call

February 19, 2014; 09:00 a.m. ET

Executives

Mike Stice - Chief Executive Officer

Dave Shiels - Chief Financial Officer

Bob Purgason - Chief Operating Officer

Alyson Gilbert - Investor Relations

Analysts

James Spicer - Wells Fargo Securities

Jerren Holder - Goldman Sachs

Darren Horowitz - Raymond James

Sharon Lui - Wells Fargo

Helen Ryoo - Barclays Capital

Derek Walker - Bank of America/Merrill Lynch

TJ Schultz - RBC Capital Markets

Operator

Good morning and welcome to the Access Midstream Partners, ACMP fourth quarter 2013 earnings call. Today's conference is being recorded.

At this time I will turn the call over to Alyson Gilbert in ACMP Investor Relations. Please go ahead ma’am.

Alyson Gilbert

Thank you, Joan. Good morning to everyone. Thanks for being with us this morning as we discuss our fourth quarter results. With me today are Mike Stice, Chief Executive Officer; Dave Shiels, Chief Financial Officer; and Bob Purgason, Chief Operating Officer. Please note that if you do not have a copy of the press release issued yesterday, please visit www.accessmidstream.com where you will find it in the News section.

Today's discussion will include information regarding non-GAAP financial measures such as adjusted EBITDA and distributable cash flow. Please refer to the Investor Relations section of our website for SEC-required reconciliations of these measures.

Finally, today we will discuss forward-looking statements that give our current expectations or forecasts of future events. They may include, but are not limited to estimates of expected volumes, future operating expenses, planned capital expenditures and anticipated asset acquisitions and sales and they also include statements concerning anticipated cash flow, liquidity, business strategy and other plans and objectives for future operations.

Although we believe the expectations and forecasts reflected in these forward-looking statements are reasonable, we can give no assurance they will prove to be correct. Please see our 2012 Annual Report on Form 10-K for a listing of factors that could cause actual results to differ materially from expected results.

With that we'll get started, and we'll turn the call over to Mike.

Michael Stice

Thanks Alyson and good morning everyone. We appreciate you being on the call this morning. As usual Dave and I will make some prepared remarks on our fourth quarter results, and then Bob will join us in answering any questions you might have.

Three and a half years ago as we were approaching our IPO in 2010, I challenged our leadership teams to set goals that would help our employees understand the size and scale we expected to achieve. One of the more heroic goals was to generate a $15 billion enterprise value by 2015; 15/15 was our rallying call.

This was a somewhat daunting commitment, given the fact that we had an enterprise value of just $2.6 billion and fewer than 300 employees at the time. However at the end of 2013, Access Midstream enterprise value was $14.8 billion, employing more than 1400 people. Further, we have become the largest gathering and processing MLP in the nation, transporting more than 7% of the Unite States’ natural gas consumption in 2013.

This growth story is just one of many accomplishments to celebrate at Access Midstream. Having accomplished this heroic commitment two years ahead of schedule, we are now setting even more heroic goals for size and scale. Our growth story is only beginning.

We are aided by the fact that our assets are located in the most prolific confidential plays in America and will be the source of long-term predictable growth for many years to come. Our company is a high growth, low yield investment and extremely well positioned for whatever comes our way in the future.

As you can see from our recent enterprise performance and the consistent increases in our distribution, we are the investment that keeps on giving for our investors. This positive market performance is a direct result of our efforts in the field. Our operations team deserves a tremendous amount of credit for the work they completed in 2013. The team in the Marcellus Shale in particular deserves to be commended and I know that team is listening to this call today.

In the Marcellus we executed a capital program with more than $290 million, installed 270 miles of pipeline and 82,000 horsepower compression. All of this while maintaining focus on capital efficiency, to maximize the net back to our producer customers. The Marcellus team’s productivity resulted in repeatedly setting new volume records in that region throughout 2013.

The team also reduced our WOPL account or wells waiting on pipeline from 259 at the beginning of 2013 to less that 100 on December 31. The Marcellus teams’ execution was extraordinary in 2013 and I want to honor them today on this call for a job well done.

Our Eagle Ford team also accomplished some significant achievements. In 2013 alone the Eagle Ford team laid 250 miles of pipe in the ground, added 55,000 horsepower of compression and connected more than 500 wells to our gathering system. The over $315 million capital program in 2013 contributed to total assets today in the Eagle Ford of $1.2 billion, establishing the backbone necessary to capture additional producer customers.

The team also completed and placed in service a naming plant with normal capacity of 100 million Bcf per day and brought online our first asset gas injection well to further serve the needs of our customers. Any one of these accomplishments will be worth celebrating, but for the team to complete all of these projects in a single year is truly heroic and also worth acknowledging today.

In the Utica, both our Access operated Cardinal gathering system and M3 operated Utica East Ohio Midstream joint venture continued to do an outstanding job of bringing gathering, processing and fractionation capacity online in record time.

We expect the Harrison Hub facility to have over 135,000 barrels per day of capacity available in the second quarter of this year. We now have 400 million cubic feet a day of processing capacity and operation at our Kensington facility with another 200 million cubic feet a day coming available in the third quarter this year.

In addition, significant construction activity in underway on the Leesville facility, that will expand UEOM’s capacity and footprint, adding another 200 million cubit feet a day of processing capacity in the fourth quarter.

We continue to build world-class gathering, processing and fractionation assets in the center of the Utica’s liquids rich acreage, while staying on schedule and on budget for our producer customers. None of our competitors have been able to match this performance and we are especially proud of M3 and their contribution to our success.

Access continues to be committed to conducting our business in the safest and most environmentally sound manner possible. During 2013 our total recordable incident rate or TRIR was 0.34 and reflects that we are one of the safest companies in the industry.

However our goal continues to be 0 accident and we are well on our way to meeting this goal. I’d like to highlight some outstanding examples of our commitments to zero at Access. Our Clinton, Winoka, Arkoma, (inaudible), KATF, Palestine and D.R. Horton field offices, all celebrated five consecutive years of injury free in 2013.

In addition our D.R. Horton office in the Barnett Shale experienced zero preventable Motor Vehicle Accidents in 2013. I applaud each of these groups and look forward to celebrating further safety accomplishments in all our operating regions in 2014 and beyond.

I am very excited to report on all these outstanding successes that resulted in a tremendous financial performance delivered to our investors in 2013. Rest assured, all Access Midstream employees are already focused on the exciting challenges and opportunities awaiting us. We look forward to the opportunity to continue to execute on this tremendous growth story in 2014.

Before we take questions, Dave has some commentary on the fourth quarter financial results. Dave.

Dave Shiels

Thank you, Mike. Good morning everyone. We ended 2013 with another excellent quarterly financial performance and capped off an outstanding full year financial performance. Fourth quarter 2013 adjusted EBITDA totaled $241 million, an increase of $122 million or just over 100% compared to the 2012 fourth quarter. Distributable cash flow totaled $180 million in the 2013 fourth quarter, up 120% compared to the 2012 fourth quarter.

The resulting distribution coverage for the fourth quarter was 1.48 times. For the 2013 full year, adjusted EBITDA was $859 million, an increase of 80% over 2012, and was above the guidance range of $800 million to $850 million. Full year distributable cash flow totaled $635 million, an increase of 87% compared to 2012 and resulted in a coverage ratio of 1.49 times for full year 2013.

Gathering volumes for the fourth quarter totaled 3.79 Bcf per day, an increase of 31% over 2012 fourth quarter. We continue to make strides in reducing the percentage of Chesapeake throughput on our systems, as the volumes from Chesapeake accounted for about 72% of our total volumes in the fourth quarter.

As a reminder, our throughput amounts include volume from our equity investments, primarily in the Marcellus, but revenue does not include Marcellus results. All of the revenue and the expense impacts from our equity investments are included in the income from unconsolidated affiliate line on the income statement.

Revenue for the fourth quarter totaled $328 million, an increase of $180 million, more than 120% over last year's fourth quarter. Revenue in the 2013 fourth quarter included $65 million related to minimum volume commitments, although minimum volume commitments revenue was recorded in the 2012 fourth quarter.

Total CapEx spending was $346 million during the fourth quarter. The primary drivers of capital were the Utica, where we invested in $140 million; the Eagle Ford where we invested $70 million; and the Marcellus where we invested $48 million. Total CapEx for the 2013 full year was $1.6 billion. For the full year we invested $598 million in Utica, $316 million in the Eagle Ford and $292 million in the Marcellus.

We continue to invest significantly in our liquids rich regions, and those liquids rich regions accounted for more than 80% of our total capital investment in 2013 and today generate approximately 50% of our EBITDA.

As Mike mentioned, the team in Marcellus executed extremely well in 2013 and the throughput averaged 1.15 billion cubic feet per day for the fourth quarter, net to ACMP's interest, an increase of 34% year-over-year.

Chesapeake exceeded EBITDA commitment for the Marcellus equity investment in the fourth quarter and for the full year 2013. Therefore, we did not recognize any income associated with this commitment.

The Eagle Ford region also continues to perform extremely well. Over $315 million of capital expenditures in the Eagle Ford during 2013 contributes to the fourth quarter 2013 throughput of 271 million cubic feet per day, resulting in revenue of $78 million.

Utica Shale had negligible throughput in the fourth quarter of last year, but generated almost $160 million cubic feet per day in the 2013 fourth quarter. We continue to spend significant capital in the Utica and the volumes from this region will become more and more significant to the partnership total throughput in 2014.

In the Barnett Shale, average throughput remained at just over 1 Bcf per day in the 2013 fourth quarter. As mentioned previously, we recognized $65 million of revenue in the 2013 fourth quarter due to minimum volume shortfalls in the Barnett for 2013.

We had previously adjusted EBITDA by $37.5 million during the first nine months of this year, in expectation of recognizing this revenue in the fourth quarter. So the net benefit to adjusted EBITDA in the fourth quarter was $27.5 million.

Haynesville throughput averaged 584 million cubic feet per day in the fourth quarter, an increase of 38% compared to 2012 fourth quarter, as volume from the Mansfield system acquired in December of last year, more than offset a volume decrease in the Springridge system. The Haynesville and Barnett regions have long-term volume protection for MVC and fee redetermination mechanisms.

Mid-Continent average throughput was 575 million cubic feet per day, essentially flat compared to the 2012 fourth quarter. A combination of a 2.5% fee escalation and rate redetermination effective January 1, 2013 contribute to a 28% revenue increase in the Mid-Continent during the fourth quarter.

On January 28 we announced another increase to our quarterly distribution from $0.535 per unit to $.555 per unit, which represents and increase of 23.3% versus the fourth quarter last year and 3.7% increase versus this year’s third quarter. The distribution was paid on February 14. For the full year 2013 we distributed $2.04 compared to $1.71 in 2012 for an increase of over 19%.

As noted in the press release issued yesterday, we have increased our capital outlook in 2014 for a slight shift in timing of cash payments on capital projects between 2013 and 2014. We increased our growth capital outlook in 2014 by $100 million to a range of $1.1 billion to $1.2 billion and increase our expected maintenance capital in 2014 from $110 million to $130 million. Our EBITDA outlook for 2014 and our EBITDA and capital outlook for 2015 all remained unchanged.

Operator, we would like to open the call for any questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll take our first question from James Spicer with Wells Fargo.

James Spicer - Wells Fargo Securities

Hi, good morning.

Mike Stice

Good morning James.

James Spicer - Wells Fargo Securities

I got a couple of questions for you. I guess first of all, in the Haynesville with Chesapeake reactivating some rigs there and then EXCO also taking over some of those assets last year, what does your outlook look like for 2014 in terms of volumes?

Mike Stice

Well I’m pretty excited about the reactivation. I think everybody on the phone call knows that the low gas prices that we’ve experienced over the last few years had a negative impact on the dry gas basin, but as you mentioned Chesapeake has planned to bring some of the nine rigs in 2014 back to the basin, right in line with the way we budgeted. EXCO also has planned to two or three rigs in the area.

So we are seeing additional activity in the Haynesville and we are excited to see that. We are protected by the MVC in the Mansfield area. We’re hoping to see activity in both, Springridge and Mansfield. I’ll have Bob comment in addition on volume.

Bob Purgason

Yes, I think really James what we expect is this drilling level is going to bring them close to the minimum volume commitment. If you recall, it stepped up from last year to this quite significantly and so we’re glad to see the rigs move in, but your not going to see a huge upside on where we are. It’s just going to be what we projected in the MVC and is already in our guidance.

James Spicer - Wells Fargo Securities

Are you projecting any benefit from the MVC this year?

Bob Purgason

Well we will give some indication at the first quarter earnings call James on where we’re headed and what the expectations are on MVC, just like we’ve done historically. So if you recall, as we get into the year, we will adjust EBITDA on the expected pace of the potential MVC, just as we’ve done in the Barnett. We’ll do the same for the Mansfield if necessary, but we’ll see how the pace of drilling looks and what the expected volume is for 2014 before we do that.

Dave Shiels

And its important to note that they are starting James from behind and we have an escalating MVC and so I do anticipate there might be some small amount of the MVC paid in 2014, even with the increased activity.

James Spicer - Wells Fargo Securities

Okay, that makes sense, thank you. Next question I had was on Chesapeake’s guidance call they talked about right sizing and planning with their mid stream partner to better align with their lower drilling programs and I was just wondering from your perspective what the discussion is you’ve been having with Chesapeake around those drilling programs and if there is any sort of change to the structure or the outlook there?

Mike Stice

Thanks James and it gives me a great opportunity to compliment what’s going on in Chesapeake. I couldn’t be more excited by what I’m seeing there. First and foremost there’s additional capital discipline and its kind of as you highlighted from their call. They are focused on drilling those higher rates of return wells wherever they may resign.

We did a very nice job in our conversations with Chesapeake to predict kind of where those rigs are and we lined up very well with their earnings call and their projections. They are also doing a great job of just squeezing out the cost everywhere they see it and that in particular is important for us obviously.

We’re engaged and trying to be as efficient as we can as we deploy capital to give them kind of best in class net backs and there’s examples of that in the Marcellus where they are the lowest fee in the basin in some areas and that’s important. Obviously we are working hard to ensure that our capital is disciplined and that’s the conversations we’ve been having with Chesapeake, to ensure that they have appropriate net backs and better economics for their wells.

So the conversations with us have been all about how do we plan better, how do we design better systems that are more fit for purpose for the volumes that they ultimately are going to see and the conversations have been very, very constructive.

James Spicer - Wells Fargo Securities

Okay, great. And then the last one I had was, can you just comment on what drove the sequential decline in your throughput volumes in the Eagle Ford?

Mike Stice

Sure James, there’s a couple of factors. I’ll have Bob comment on this, but obviously the Eagle Ford continues to be very, very active, but it is primarily an oil play and there’s a number of issues, both with some weather related rain, which is highly unusual in the Eagle Ford, but also which put us in a bit of a delay on some of the construction projects. But also on the Chesapeake side, we’re seeing some SIMOPS complications and I’ll let Bob comment on how that really works.

Bob Purgason

Yes James, really the SIMPOS issue, last quarter I think we had like 13 rigs in the Eagle Ford. This quarter we got 23 running and in particular in our high gas oil ratio areas, Chesapeake has come in and put several rigs to work that have caused the existing production to be shutdown while they drill those rigs – while they drill those pads, and what it really is, is a good news story, because we expect higher volumes to start coming in later quarters as a result of that new rig activity.

So what you are really seeing is that SIMOPS impact of shutting producing wells in to drill other wells on those pads, which is part of the program for more efficient drilling economics and that has a slight impact and you saw it in our numbers here this quarter, but overall it just means bigger volumes to come.

Mike Stice

And SIMOPS is code for Simultaneous Operations if you didn’t pick up on that.

James Spicer - Wells Fargo Securities

Okay, great. No, that makes sense, thanks a lot guys.

Mike Stice

You bet.

Dave Shiels

Thanks James.

Operator

And we’ll take our next question from (inaudible) with Credit Suisse.

Unidentified Participant

Hi, good morning guys.

Mike Stice

Good morning.

Unidentified Participant

A couple of quick questions. First on the Marcellus, the miles of pipe at the end of the fourth quarter was 823 miles compared to I think 1,400 at the end of the third quarter. Is the difference just the way it’s reported or is there something else there?

Mike Stice

No, there’s actually been a shift in the strategy, there’s a lot more pad drilling going on up there I believe and that we’re connecting the pads.

Bob Purgason

And there’s a big notice on the stats piece [Avi] (ph) is we sold some legacy Marcellus pipe back to Chesapeake and it was old, small Appalachian production and it allows them to go ahead and sell those properties to others as they are divesting, but it wasn’t part of our core shale strategy, so its pipe that we are plenty, happy to get rid of candidly and it doesn’t impact our Marcellus growth story.

Mike Stice

Yes, if you were going to total the miles, that’s exactly what it is.

Unidentified Participant

Okay, great. No, that’s definitely helpful. And then could you provide some color on how much of your EBITDA from unconsolidated affiliates came from Utica East Ohio this quarter. I think this is the first quarter it really contributed and maybe how we should think about that ramp up going forward.

Mike Stice

Yes, Utica East Ohio as reported for the fourth quarter was negligible. So we’re still in a position Avi where almost all the income from unconsolidated affiliates is the Marcellus.

Unidentified Participant

Okay, got it.

Mike Stice

You’ll see that in 2014.

Unidentified Participant

Okay, got it, and then a last quick one, could you maybe talk a little bit about how your looking at things in terms of M&A. Are there regions that you are looking to kind of actively compliment what evaluations kind of look like now versus where they were last year? Any other color would be very helpful?

Mike Stice

Sure. AS you know the M&A space in general is very active. There’s lots of opportunity. We evaluate everything that is within our footprint. We’re committed to kind of our bolt on strategy in looking for unique opportunities where we can capture synergies that allow us to capitalize on our pre-existing footprint.

Lots of things going on in the Marcellus and the Utica; see some opportunities in the Eagle Ford as well. Other areas tend to be more previously dedicated. We already own through dedication the bulk of the producer commitment to the Niobrara, but in those areas that I just highlighted, I think there’ll be some additional transactions that will take place and we would love to capture some of those opportunities to expose of some additional upside.

Unidentified Participant

Okay, great. Thanks very much.

Operator

(Operator Instructions) And we will take our next question from Jerren Holder with Goldman Sachs.

Jerren Holder - Goldman Sachs

Good morning.

Mike Stice

Good morning Jerren.

Jerren Holder - Goldman Sachs

Hey. We saw some I guess all our producers pretty much got impacted by weather related events like severe winter weather. Did that impact some of your systems at all this past quarter or into the first quarter?

Mike Stice

Yes, it did. Obviously I mentioned previously that in the Eagle Ford we had this kind of torrential rain in South Texas, which is highly unusual. It created a little bit of delay in getting our construction activities. We actually saw a full week, week and a half of oil trucks not being able to get to the wells and so that made an impact on our ability to actually redo our construction activities.

We also in late December and frankly more so in January, many people saw tremendous weather events in the east and specifically impacted the Utica. Less so in the Marcellus, just because we had so much going on there, but the snow and winter conditions has a greater impact on the producer customers than it does on us and then we get impacted by their difficulties at the well head.

Jerren Holder - Goldman Sachs

Okay, I guess from the standpoint of I guess the recent strength in spot natural gas and NGL prices, have you guys essentially seen not necessarily activity pick up, but also a need for additional wells to be connected as a result or not; has the pace remained kind of the same?

Mike Stice

What I’d say is we’re not seeing a huge shift in drilling programs as a result of that near term spike and its very much in line with what we budgeted. I think though the environment is very upbeat, because people see that there is a demand for gas and the importance of weather in predicting what’s going forward. So we think overall it’s a great new story, but we’re not seeing a huge pick up in activity as a result of that.

Bob Purgason

I think the exciting thing for us is that we’ve always had a diverse portfolio in both the liquid rich plays and the dry gas plays and its good to see this price signal sending the rigs back into these dry gas plays, and that’s one of the big benefits of having a diverse strategy and a diverse spacing outlook.

Jerren Holder - Goldman Sachs

Okay. And I guess over across in the Utica, what are your expectations for capacity utilization this year? Obviously you guys are building your joint venture a lot of capacity and completing essentially the Kensington complex. So I guess what are your thoughts as far as we ramp up through 2014 for utilization in general for the processing fractionation assets?

Mike Stice

Yes, we are trying to time those additions and our well connects to where there’s a very high utilization of facilities as they come on. So it maybe a kind of a quarter behind, but basically the drill bit is waiting on us to build our facilities, but they are not unduly waiting, we are staying current with it. So I’d expect that by the end of the year we’ll have high utilizations on the facilities we have in place.

Jerren Holder - Goldman Sachs

Okay. And last one for me, switching across your cost service agreements, so essentially the fee had to be calculated annually given that we’re at the end of the year. How does last year compare to this year in terms of what we’re going to see from the fee recalculation?

Mike Stice

Yes, generally we don’t give any guidance on specific fees by region. We talk generally about those cost and service structures and the fact that they are targeted at mid teen returns over the life of the contracts and we do have a process to work with the producer each year to update those fees, but we don’t guide on those fees and we don’t really see anything extraordinary happening over what’s happened previously in other years.

Dave Shiels

And I know you know this, but it’s a very – it’s a fairly rigorous calculation where we consider our volume and our CapEx spend and our cost for operating each and every basin and that goes into calculating the time. So it does take some time to do that at the end of each year.

Jerren Holder - Goldman Sachs

Okay, thank you.

Operator

And next we’ll go to Darren Horowitz with Raymond James.

Darren Horowitz - Raymond James

Good morning guys. A couple of questions for me around the Utica. I’m just trying to get a sense beyond that 800 million cubic feet of processing capacity that you got in the works of Kensington and Leesburg. What’s the opportunity for expansion there is and how much more incremental processing capacity would you have to add in order to expand frac capacity at Harrison?

Mike Stice

So the way to think about the ratio there, its roughly 35,000 to 40,000 barrels a day of fractionation for every 200 million a day of gas processing. So that’s a good way to kind of think about the ratio.

The 135,000 barrels a day that’s there now or will be there soon is enough to do the 800 million a day that we’re talking about and we think there’s probably some enhancements that we can do against the nameplate capacity to expand both the processing and the fractionation. Those are design capacity numbers that I’m quoting you.

We are excited about what we’re seeing in the Utica. There’s some new producer activity. We’re chasing probably another 200 million to 400 million a day of what is incremental business in the area and we’re hoping that we will continue to add plant capacity at both Kensington and Leesville to ensure that we capture our piece of the market. So I can see that we’re currently at 800 and I can see us trying to get enough business to get up to 1.2 bcf a day.

Darren Horowitz - Raymond James

Okay, now does that included Mike in that kind of $1.9 million to $2 million CapEx guidance in the Utica by the end of next year or would that be incremental?

Mike Stice

That would be incremental.

Darren Horowitz - Raymond James

Okay, and then also staying with Utica, I know that we have talked previously about maybe getting closer to finalizing a condensate solution and I know that you had mentioned maybe a central delivery point, but also talked about some rail loading opportunities in order to maximize producer netbacks.

I'm just curious, have you gotten any further with producers to where that you’ve got a solution outlined and is this still a situation where you think that you might just want to lay a condensate pipe right next to the NGL lines, just for ease of right away and efficiency to market or has anything changed there?

Mike Stice

Well it’s a moving target as you can imagine. I think most of the producers who own the commodity – and keep in mind, we do not own the commodity. We effectively are providing a service for fee. We are very excited about the opportunity to lay pipe out of there, but most of the producers have taken a decision that in the near term they want to use their mobile resource, mainly rail, to get the condensate and the natural gas cleaned up to the diluent market in Canada. There are a couple of interesting projects that could take that condensate that same stream via price potentially over the Southern lines and then up into Canada.

I think the same is true in the propane. I think there’s a number of additional NGL pipeline opportunities that could come our way once the final destination of these products are known and can be confirmed and then ultimately be connected via pipeline.

So it is something we’re very interested in. Obviously the projects that we’d like to see take place is some kind of Gulf Cost ethane line, because that gives us some additional development capabilities and so we definitely believe that you need to be connecting these products to the important storage and petrochemical industries that reside in the Gulf Coast.

Darren Horowitz - Raymond James

Okay. And then last question for me Mike, just your outlook on any sort of change or sentiment sift as it relates to producers thinking about dry gas activity coming out of the Marcellus. I mean obviously we had a pretty good sized move in the curve and even the forward curve, even though its backward dated for natural gas. I’m just wondering as your talking with producers and they are reallocating capital through the drill bit, if their outlook on dry gas volumes out of the Marcellus has changed and what that could mean for you?

Mike Stice

Yes, I think they continue to be very positive. I mean dry gas in general, that’s indicative of the activity we’re seeing in the Haynesville where they can get fairly large initial production rates, so that’s a pretty positive and then the Marcellus continues to benefit from an Appalachian basis premium and so I think the motivation in the Marcellus will continue.

Its amazing when you think about it. I mean we had over 2.6 bcf a day coming from the Marcellus and the bulk of that, roughly Q2 growth volume was coming from two counties, Bradford and Susquehanna. So the Marcellus has just been an enormously positive play for the producers and its been benefited by its location to market.

So in my conversations I see nothing but additional promise in the Marcellus and we see it in a variety of different areas within the Marcellus. It’s a huge basin and I see a lot of production coming our way there in the future.

Darren Horowitz - Raymond James

Thanks Mike.

Operator

And next we’ll go to Sharon Lui with Wells Fargo.

Sharon Lui - Wells Fargo

Hi, good morning.

Mike Stice

Good morning Sharon.

Sharon Lui - Wells Fargo

I guess just following up on your previous comments on M&A activity, was there I guess any interest in pursuing the M3 assets in Appalachia?

Mike Stice

There is always an M3 effect. I think M3 was chosen to be a strategic partner for its explicit reason and they have delivered on it extremely well. They are a very talented group of people, specifically in regard to building processing and fractionation facilities and so we are enjoying the benefit of their organizational capability and we believe that that will continue to be a long-term proposition for us.

They have not indicated any interest in selling. If anything, they too are enjoying our partnership and the connectivity between Cardinal, our operated gathering assets and of course UOM, their operated processing and fractionation. So there’s not been any conversations about acquiring their interest at this stage.

Sharon Lui - Wells Fargo Securities

First, I guess did you bid on the package that eventually went to Rice Energy? Was that some assets that were of interest?

Mike Stice

We did and we participated in that process. We were not the winner in that transaction, but we are very interested in that asset. It fits like a glove, but we were not the winning bidder.

Sharon Lui - Wells Fargo Securities

Okay.

Bob Purgason

And Sharon that was not a high-shopped deal, the one you are talking about that Rice bought in the Green County area. So they saw I think a unique strategic fit with their production profile and it made good sense for them.

Sharon Lui - Wells Fargo Securities

Okay and I guess looking at distribution growth, after delivering a significant increase in the third quarter, the fourth quarter you were able to further increase the distribution rate. The growth is north of 20% year-over-year for both quarters. Just wondering I guess what are your thoughts in terms of sustaining that type of growth versus your previous target of 15%.

Dave Shiels

Yes Sharon, this is Dave. So as we said, during the third quarter earnings call we did have the step-up for the third quarter, but we plan to grow 15% from that new step-up point. So it will create some higher year-over-year growth numbers as we do that, but think of it as stepping up the distribution in the third quarter of 2013 and then growing sequentially 15% annually from that point.

Sharon Lui - Wells Fargo Securities

Okay, that’s helpful. Thank you.

Dave Shiels

You bet.

Mike Stice

Thanks Sharon.

Operator

And next we will go to Helen Ryoo with Barclays.

Helen Ryoo - Barclays Capital

Good morning.

Mike Stice

Good morning Helen.

Helen Ryoo - Barclays Capital

A question on your Harrison fractionator. So I guess there seems to be an NGL line being built from the Hickory plant to your fractionator and I was just curious if you’re the fractionation solution for that plant or that plant is just connected to multiple fractionators in that area.

Mike Stice

The line your referring to is probably one of many that will take place over the development of the resource. The best way to serve our producer customer is to create as much inter-connectivity between the various operators as possible and so we are very much committed to that. There is no doubt that our fractionation capacity is coming on earlier than a lot of people in the area and so we do offer a near term timing solution.

But I think in general you will see as this basin develops, all of the operators, competitors alike, look for opportunities to connect to each other, so that our customers can ultimately benefit from that optionality, and so that’s exactly what you’re seeing and I think over the years you’ll see a lot more of that.

Helen Ryoo - Barclays Capital

Okay, got it. And then just another follow-up to the M&A question. If at some point the 50% of (inaudible) [GT] space of GIP comes to market, I mean is that something that you would be interested in signing that.

Mike Stice

Well, all the options are opened right and there’s a number of ways to monetize the GP interest and there’s a variety of different ways of doing that. I mean people talk about the LP buying the GP, people talk about the GP going public. Obviously it could consensually be something that ends up in millions of payments. All of the options are available to us and we made no commitment to anyone one path.

Helen Ryoo - Barclays Capital

That sounds great. Thank you very much.

Operator

And next we will go to Derek Walker with Bank of America/Merrill Lynch.

Derek Walker - Bank of America/Merrill Lynch

Hi, good morning guys.

Mike Stice

Good morning Derek.

Derek Walker - Bank of America/Merrill Lynch

Hi, just a quick one from me. Can you remind me how much Chesapeake is of – has the kind of throughput your systems. I think previously you indicated reducing that down to 50% by 2015. I know you’re in discussions with several producers both in the liquid group side, as well as the dry gas side. Can you just talk about the – has that target changed and how are you looking at that going forward?

Mike Stice

Well, the target hasn’t changed. We are still very much committed to getting it to 50% by the end of 2015. Obviously as I’ve committed previously it will likely come in kind of a lumpy fashion driven by transactions that either Chesapeake or we ultimately do.

I think its important to recognize that we are making some progress. The number you are referring to, the volumetric throughput number has gone from 75% to 72%, which is showing that not only are we making some progress from going to 75% to 72%, but we are actually seeing third party producers engaged with us and utilize our tremendous backbone that we have in all these basins.

We see a lot of really good producer activity on our systems. I think mainly TOTAL and Saddle in the east. We got a diversification coming our way with Stonegate and the Eagle Ford. We got diversification coming our way in the Utica with a number of different producers that have bought acreage from Chesapeake and we see that trend is going to continue. So we still very much are committed to that 50% and we think 2014 should be a good year for making significant progress.

Derek Walker - Bank of America/Merrill Lynch

Thanks Mike. That’s it from me.

Operator

And next we will go to TJ Schultz with RBC

TJ Schultz - RBC Capital Markets

Hey guys, good morning. Dave, maybe if you could just update us on the ATM what you’ve issued under that program, kind of plans for that program in 2014 or just talk generally about funding.

Dave Shiels

Sure. We used it to the tune of about $50 million TJ in the fourth quarter of 2013. That leaves about $250 million of capacity on what we filed last year. So we will continue to use it as we used it in 2013. So we’ll be opportunistic. I think the 250 capacity for 2014 is more than enough.

Regarding funding other than the ATM, of course ex-M&A activity, I wouldn’t expect any other equity requirements we can fully debt fund and delever at the same time with our EBITDA growth, so yes, it’s a fantastic story.

If you look at our guidance and you see EBITDA growth, you can see that the business will naturally delever with almost entirely debt funding and the ATM is a fantastic tool for us to kind of round up the edges on that delevering process. So that’s how I see 2014.

TJ Schultz - RBC Capital Markets

Okay thanks. And can you just comment on the interest in ACMP owned by GIP. Just kind of how you view their factors and monetizing unites after a couple of secondaries last year, and side on kind of those funds, as investments are held there in timing for potential sales.

Dave Shiels

Yes TJ, same answer that we’ve always had. I’m sure that they will be opportunistic as they have had in the past to return some profits to their investors. I think Mike will tell you they love our investment. They are very involved in even the day-to-day operations of ACMP and I wouldn’t expect anything other than what they’ve done historically, which has been involved for the long term. So clearly they will take opportunities to return to investors, but I think they are much long-term players as I see it. Mike.

Mike Stice

Totally agree. Obviously we don’t have any indication. That’s their decision not ours, but they have roughly a 23% remaining LP unit – I’m sorry 34% remaining LP unit in position and we all know that they ultimately are selling. So I think that’s important to recognize and I would anticipate some activity in 2014.

TJ Schultz - RBC Capital Markets

Great. Thanks guys.

Mike Stice

So I think that’s all the questions. Its been our great please to present yet another fantastic quarter for ACMP. We are excited about 2014 and looking ahead we see lots of opportunities working with all of our producer customers, big activities returning to the dry gas basins, which is particularly noteworthy and we see continued activity in all the liquid rich plays.

We continue to integrate and get into some of those other opportunities like fractionation and pipelines, etcetera and we see that as exciting for our organization and our people going forward. So looking forward to a very challenging 2014, but also very rewarding for ourselves and for our investors.

We thank you for your time here this morning and until next time I hope everyone has a great quarter.

Operator

This concludes the Access Midstream Partners, fourth quarter 2013 earnings call. Have a great day.

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