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Williams Partners L.P. (NYSE:WPZ)

Q4 2013 Earnings Conference Call

February 20, 2014 9:30 AM ET

Executives

John Porter – Head, IR

Alan Armstrong – Chairman and CEO

John Dearborn – SVP, NGL & Petchem Services

Rory Miller – SVP, Atlantic-Gulf

Allison Bridges – SVP, West

Don Chappel – CFO and Treasurer

Analysts

Brad Olsen – Tudor Pickering

Stephen Maresca – Morgan Stanley

Abhi Rajendran – Credit Suisse

Christine Cho – Barclays

Jeremy Tonet – JPMorgan

Harry Mateer – Barclays

Ted Durbin – Goldman Sachs

Carl Kirst – BMO Capital

Craig Shere – Tuohy Brothers

Sharon Lui – Wells Fargo

Timm Schneider – ISI Group

Faisal Khan – Citi

Chris Sighinolfi – Jefferies

Becca Followill – U.S. Capital Advisors

Operator

Good day, everyone, and welcome to The Williams and Williams Partners Fourth Quarter Earnings 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.

John Porter

Thank you, Danna. 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 analyst packages, the slide deck that our President and CEO, Alan Armstrong, will speak to momentarily, and an update to our Data Books, which contains detailed information regarding various aspects of our business.

In addition to Alan, we also have the four leaders of our operating areas with us. Jim Scheel is our Northeastern G&P operating area, Allison Bridges leads our Western area, Rory Miller leads the Atlantic-Gulf area, and John Dearborn is here from our NGL & 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

Great. Thank you, John and good morning. Let me welcome all of you who joined us today for our fourth quarter results. We’ll talk – also talk about our major developments and our outlook today. We do have a lot to cover today concerning items like Geismar, Gulfstar, Bluegrass our Northeast volume growth and now our very exciting project Atlantic Sunrise. But before I turn to our fourth quarter results and our full year, let me provide a brief update on where we are with Corvex and Soroban. As you know in December, Corvex and Soroban disclosed their interest in each having representation on the Williams Board. Since, that time we’ve been engaged in discussions with both Corvex and Soroban related to the company’s strategic plan to drive continued value creation and of course we look forward to continuing those discussions with those parties.

We do have a long track record here at Williams and in fact in recent years have been a leader in taking advantage of transformational and structural opportunities to create value for our shareholders and we continue to welcome input towards our goal of enhancing shareholder value for this great company. And so with that, let’s turn to our fourth quarter results.

Before we get into the details of fourth quarter performance of WPZ, I’d like to remind you of our strategic focus to grow our exposure to fee-based revenues. We are accomplishing this by continuing to develop large scale infrastructure that will be critical to connecting the fastest growing supplies to the fastest growing markets for natural gas and natural gas derivatives. And in fact this train is just gaining speed as we saw an 8% increase year-over-year in fee-based revenues in WPZ and we expect even faster growth into 2014 and 2015. In the fourth quarter, WPZ enjoyed this growth during despite harsh winter weather conditions in the Rockies and in fact we had another record for DCF growth in the fourth quarter of $509 million up 26% over the previous fourth quarter.

This strong performance exceeded our internal expectations in spite of about $43 million lower in the NGL margins. One of the drivers for the better performance was lower cost and maintenance capital expenses. About a year ago, we reorganized the company to enable a flatter management structure and better cost efficiencies by deploying our very best knowledge of things like asset integrity and determine across our entire operations. And as you can see by analyzing our numbers, we’ve been able to drive the combination of our O&M and G&A expenses lower despite managing tremendous growth in our business.

I want to be very clear that our lower maintenance cost in our maintenance CapEx area has been driven by better efficiencies and fewer required repairs not lower standards of care across our facilities. WMB also – moving on to WMB we also enjoyed 8% increase year-over-year in segment profit for CD&A for the quarter with Williams Partners carrying much of that increase, one disappointment for the fourth quarter was the financial performance for our WMB NGL & Petchem Services segment primarily driven by Canada where third-party outages dramatically impact its supplies available for our Fort McMurray facility. With that project is up and running very well now, and is now exceeding our expectations for both recoveries and volumes as we really have that business up in running very smoothly now with the ethane recovery portion that we added in the business in the third and fourth quarter of last year.

So, we look forward to that project becoming the driver for WPZ’s results, with the dropdown and we expect that to be completed very soon here actually at the end of this month. So, of course, we appreciate the great work to team at ACMP is doing to grow their business in a steady and predictable manner and of course this also helped us outperform here for the fourth quarter.

Moving on to the DCF growth and our expectations for growth looking into 2014 and 2015, we do continue to expect strong DCF growth, in fact greater than 50 – sorry 50% from 2013 to 2015. This extraordinary growth rate is on the backs of large capital investments that we’ve been making over the last couple of years most of which – a lot of which has been financed by equity. And our organization is very focused right now on executing this large capital program that is essential to this growth.

We updated our commodity prices in our latest assumptions on all of our key projects for 2014 with the degree of volatility we’ve seen recently in commodity prices there are lot of different impacts on our guidance. But in summary, our guidance range is unchanged from the third quarter. We have great visibility around the projects that we expect will drive this growth. We continue to hit key execution milestones that served to substantially de-risk these major projects and I’ll talk a little bit about that and some more detail in a few of our projects.

Where we did update our guidance is for growth CapEx where we have added some noteworthy changes and we’ll see that here on the next slide. And so, you can see for the WPZ increasing CapEx, we’ve got initial spending on some new projects, so projects like Atlantic Sunrise and Dalton. And this higher spending reaffirms our belief in growth potential of our business both within and well beyond our guidance period.

Two of the new projects we’ve listed here, Atlantic Sunrise and Dalton are on our Transco system where we continue to see strong demand for our services and really I think in a very positive way here not just coming from the supply side but from the market and the demand side as well. I expect you saw our new release this morning with some additional detail on Atlantic Sunrise and we’ll hit that topic here in few minutes. Gunflint which is mentioned here is a deepwater tieback to our new Gulfstar One facility and our team on Gulfstar has done a terrific job of making some modifications on at the top side there at Gulfstar to be able to accommodate the – easy tieback of Gunflint, so really excited about where our team continue to execute on Gulfstar One.

And WPZ will be adding CapEx for the new Redwater projects. So, these are expansion that Redwater that will accommodate things like CNRL horizon volumes that will be coming in and so, we’ve added capital in there for that as well. We are also incorporating $175 million higher capital spend for the Geismar expansion on higher cost that result in part from the delay and the restart. For WMB specifically, you’ll see that we have lowered our growth CapEx to reflect to shift in timing to mid to late 2016 on the joint venture Bluegrass Pipeline project to better match the need of the market. We remain very excited about the Bluegrass Pipeline project and I continue to believe that it’s the best solution available in the market. And what I can tell you in terms of where we are is that the activity that we continue to see and the input and discussions that we’re having there is – there are number of parties out there who share our view of the market and the attractiveness of the solution. And we are working and reached definitive agreements with all interested parties as we push that project forward.

Moving on to next slide here on Atlantic Sunrise, just a little bit of update, just some brief information. We did issue a new release earlier today on the milestone the Transco executed firm contracts with nine shippers for 100% of the 1.7 million dekatherms per day of firm-transportation capacity. And so, we’re very excited to announce that, very important project for Transco and that it not only serves as a great investment but it really opens up a lot of supply availability for expanding markets as well. The project includes 15-year shipper commitments and the shippers are both producers, local distribution companies and power generators.

The project represents vital energy infrastructure designed to connect serving new supplies to natural gas into Marcellus producing region and really coming mostly from the Northeastern Pennsylvania area with growing demand centers along the Atlantic Seaboard. We expect to bring the Atlantic Sunrise into service in the second half of 2017 and of course this assumes all necessary regulatory approvals are received in timely manner.

Moving on to our milestones and key accomplishments and developments here. On Slide 9, we did have a number of recent milestones in the fourth quarter and even into this year. We brought the Canadian ethane recovery project online as I mentioned earlier, the volumes in the fourth quarter for that were disappointing for a number of reasons but primarily impacted by some third party outages both upstream and some difficult piece delivering the project – the product downstream, those have all been worked out now and we are enjoying as I mentioned earlier, great volume growth now.

We’re reaching important milestones on our Keathley Canyon and Gulfstar projects. We also are rapidly growing our Northeast business, we saw a 63% increase in our gathering volumes from the fourth quarter of 2013 with fourth quarter of 2012 and that compares very favorably if you really look at the whole Marcellus volumes which grew about 40% last year. So, really we’re growing, I’d say we’re growing at a 50% higher rate than the broader Marcellus base is growing, so we’re very excited about that.

We did see our volumes reach an average of about 1.9 Bcf per day for the full year and of course our actual volume was well above that now. We touched on the impressive financial growth that we expect to see between 2013 and 2014. I would certainly say that’s not without risk and we’ve highlighted the largest of the growth drivers here for 2014 as we continue to push forward on these projects. Looking at 2015 and beyond, we’re really starting to see the development of our growth as some of our project experience, our full year earnings and we bring these new projects online. So, 2015 is both the combination of a lot of the full year benefit of projects like Gulfstar and Keathley Canyon which come on – in the last half of the year, going into 2015 as well as some exciting new growth projects for 2015 as well.

Beyond the guidance period, we really begin to see the effect of these major projects, they provide visibility to our continued WPZ DCF growth and support for Williams continued strong dividend growth because we do have the luxury of so many projects that leverage off of our competitive advantages, we can’t be selective and pursuing only to best risk adjusted return project. So, we’re in a very envious position to be allocating capital to well needed very best projects.

Moving on to Slide 10 here, it’s a picture of the – our different services we’re providing for the Northeast. And here is our large scale strategy, it really comes together and plays out in this key growth area where we have operations, investments and opportunities across our various lines of our business. We’re strategically positioned in one of our fastest growing production areas, the biggest challenges in the Marcellus and the Utica are exactly the kinds of problems that our large scale infrastructure strategy has designed to solve. This is a great resource basin that needs great market access. And what stands in our way, well as we’ve been pushing through these major projects, certainly one of the key issues is the customers’ ability to make major commitments up against very complex, regulatory structures and the risks in their business. And certainly the regulatory complexity that it’s taking to get this large scale infrastructure installed as well our barriers to growth, that’s both an impediment but it also a great opportunity for a company like Williams that’s very skilled but taking on these very large complex projects.

Atlantic Sunrise and Bluegrass are really big infrastructure solutions that we’ve been working on. In the case of Atlantic Sunrise, it took some chronic, very visible infrastructure constraints in the market to bring adequate shipper support. And firm-transportation contracts with long 15-year terms to the project. Consider that in this example with Atlantic Sunrise, it takes more than $400 million in annual revenue each and every year over those 15 years along with very strong credit support behind those to underwrite a project of its size, that’s a very big commitment to make in the phase of these regulatory masses. But, as we mentioned earlier, the market is really recognized that it’s going to have to invest and support these kind of projects into Atlantic Sunrise. It is one of the first major investments that’s coming that connects increasing markets with these increasing supply in the Marcellus area.

Of course, it’s on the backs of three smaller projects that we’ve been doing out of the area but this is really a very large scale project that we’re bring forward. We certainly believe that Bluegrass Pipeline project will be the next chapter and how the stories plays out. But in the NGL segment of the market as the constraints and the supply sources become more evident and people work harder for really the right solution of the Basin. And our discussions with our customers certainly indicate that’s where we’re headed.

We expect to bring the Geismar plant back into service, sorry I’m moving to Slide 11 here. We expect the Geismar plant to be back in service in June this year. The delay in returning the plant to service and completing the expansion resulted from a variety of factors including the extended loss of utilities, so that’s primarily things like steam, our electrical system, those were all damaged severely in the incident and as a result, getting the project back up and running with outsource systems has proved to be very difficult and very complex. Based on the current commodity price assumptions, we continue to expect that we are mostly covered on the financial effect of the incident with the exception of the 60-day period before the business interruption insurance kicked in during 2013 ends at $13 million in cash deductibles that were primarily associated with property damage.

Moving on to Slide 12 here, talking about some exciting milestones here in the – in our deepwater projects and of course that’s – we included in our Atlantic Gulf segment. On Gulfstar One, we’ve now achieved an important milestone with the mooring process. So, Gulfstar has now reached storm-state status and the contingencies to cover risk related to weather and powerful heavy currents can be dramatically reduced. So, one of the key issues is getting a spar like this set when we set double star originally we were faced with some pretty bad heavy currents in this area. And getting that facility moored is a major milestone for our team and things have been going very smoothly and accelerating the schedule in Gulfstar. So, very excited about the team’s performance out there on Gulfstar.

And so, we do expect our facilities to be in place for an on-time startup of production. Keep in mind that for about – that a portion of our cash flows will be dependent on the start-up of the production. And of course, we will be doing everything we can to help the producer bring production on as soon as possible. I’ll remind you that on Gulfstar, that has an Chevron’s Tubular Bells prospect initially and then as I mentioned earlier, later outside of the guidance period – sorry Gunflint would be tied back, we did expect production to commence in the third quarter of this year. On the Keathley Canyon project, the customers are Anadarko and Exxon. And we expect this work to be done well ahead of the production commencing the fourth quarter of this year. And in fact our deepwater line is now more than 80% laid.

Moving to the summary, Slide here on 13. We just tell you we’re very committed to the strategy with an intense focus for the long-term on the natural gas supercycle. We are convinced more than ever that we’re really in the sweet spot, we positioned ourselves – we positioned ourselves very well to create value in this environment. We are now getting some tailwinds from a lift in both NGL price and gas prices and these are exactly the kinds of signals that the producing community needs to see right now to continue to develop the resources that are out in front of us.

We’re rapidly converting our business to volume, fee-based business that is enduring and we’re putting in the kind of infrastructure that is difficult to replicate in the long-term. We are very focused on this critical infrastructure and very well contracted business as going to be here for the long haul due to its competitive advantages in the market. That’s hard work, it’s a lot of risk and it’s a lot of grip on the part of our team to push through all that but that’s exactly what we’re going to stay focused on and as the step that in the long term the market is going to have to for a sustainable growth in natural gas and natural gas derivatives markets here in the U.S. I truly believe that there is no other company in this sector that enjoys the degree of visibility to growth that we enjoy both now and over the long period.

So, with that, I thank you very much for joining us. And we’ll turn it over to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll go first to Brad Olsen with Tudor Pickering.

Brad Olsen – Tudor Pickering

First, quick question about weather. Obviously, the price impact of this winter has been very good for gas in NGL markets. What impact if any, do expect to see as we move into Q1 in terms of freeze-offs or other operational issues as a result of weather either in the West or in the Northeast? And have we seen some of the build out in the Northeast or some of the drilling activity is slow as a result of some of the cold weather?

Alan Armstrong

Yes, great. Brad, thanks for the question. First of all, I’d like to command our Western team and our Northeast team for some great operations despite some pretty difficult environments at West in the fourth quarter. Moving into the first quarter where your question was targeted, I would say the West continues to do pretty well up against our normal – we normally do have quite a bit of freeze-off. But, we tell you they continue to perform very well up against the norms for the Rockies in the Western area, San Juan basin has actually had one of the better periods during this than we normally see – normally see quite a bit of reduction in production there.

In the Northeast, I’m very thankful for the work our teams done out there to keep the reliability up on our system, I will tell you there is certainly been some freeze-offs upstream on some of the producer’s equipment and some of the volumes upstream of our facilities but our facilities have remained very reliable and really excited to see our team having pushed through some very challenging times of getting these facilities up to reliable standards. And so we also had some freeze-offs out there in the – in the wet Marcellus area but again it’s not been on our systems, it’s been upstream and producers has been working very quickly to overcome that.

Brad Olsen – Tudor Pickering

Great. And then another question about a little bit more about the long-term outlook in the Northeast on your OVM systems specifically. There been some really impressive dry gas well results just across the river in Ohio and it appears that there is some potential prospectively in [indiscernible] for those very productive dry gas horizons. Are those – is that kind of emerging play, something that you’ve discussed with your OVM customers? Would that dry gas production if it does – if it does emerge, would that dryer gas maybe alleviate some of the operational issues that you’ve seen with some of the – especially super-rich gas that you had on the OVM system just by diluting some of the liquids content and providing you with maybe more of a dry gas blend stock for some of the ethane-rich gas you produce?

Alan Armstrong

Yes. Well, first of all I would say there is several of our key producers that do have plans this year to test into both the Utica dry and the Upper Devonian. And well the Upper Devonian doesn’t provide any relief as a process incoming to [indiscernible] think about – they’re getting moving to dry gas as a relief but to your point some of the big volumes that we’ve been seeing from Utica test in the dry area would certainly help provide some sweeping volumes and a more reasonable gas to liquids face in our pipeline. So, we’re excited about that and we certainly are working with producers. I will tell you, included in our capital is some expansions of our systems to be able to accommodate some of those higher volumes on the dry gas side.

Brad Olsen – Tudor Pickering

Great. And just one last one on Constitution and Atlantic Sunrise. Constitution kind of stood out as the only guaranteed pipe project involve a significant laying of new built pipe. And Atlantic Sunrise at least from the map you provided, it appears as though that project would also involve some significant new pipe from kind of the Leidy Line down towards Station 190. And I guess is there anything from the Constitution process that’s maybe something that could be applied to the Atlantic Sunrise process or is it something where as long as your laying significant new build pipe, there will be some regulatory risk of delays in when have you?

Alan Armstrong

Great question. I would tell you that on Constitution the real issue we’re facing right now from a regulatory issue really relates to the New York TEC not to the FERC. And so, the nice thing about Sunrise is this is not go through the New York area so we’re not faced with that same regulatory issue. On the FERC side I would just tell you they are continuing to push through, you’d saw the Constitution drop EIS, we are very thankful for the FERC continuing to try to pursue with their part to accelerate these projects and we continue to work well with them. And we certainly have some a lot of discussions communications we need to do in New York to find the right answers and right solutions there as well.

Brad Olsen – Tudor Pickering

Great. Thanks a lot Alan.

Alan Armstrong

Thanks.

Operator

We’ll go next to Stephen Maresca with Morgan Stanley.

Stephen Maresca – Morgan Stanley

Hey, good morning Alan and team.

Alan Armstrong

Good morning. Thanks.

Stephen Maresca – Morgan Stanley

Couple of questions on Geismar, I say expect to be out of service until June, how firm is that they and then how much extra out of pocket cost there for each month you missed that? It seems like there you’d only had, I don’t know if I’m reading this right, $10 million of additional uninsured losses from delaying this two to three months from April to June? Is that right?

Alan Armstrong

Yes, it’s for two months, that’s correct, just a little over two months of delay, that’s correct. And so to answer your question, right now the mechanical completion is expected in the first part of May and I would tell you there is obviously lot of things to go right but I’m very proud of the work that our team has done to really dig in, in some great detail to understand what the drivers of that are on the productivity labor. And I think – I think we’ve got a very studied perspective on that issue. Having said that, I would tell you the window is probably from the last week in May through the end of June as the expected window right now for that start-up. And in terms of that cost of course, if we were delayed beyond that, it’s very dependent on ethane to ethylene spreads. And but in a range that’s probably around $1.5 million or maybe up to $2 million a day of expected revenues we’d lost on them.

Stephen Maresca – Morgan Stanley

Okay. Thanks for that. And then one more, the $175 million of more CapEx on higher cost for Geismar here. Is it just relating to repairs or you getting a return on that at increase capital spend?

Alan Armstrong

No, they’re unfortunately this isn’t one that – doesn’t get any return on. And I would just tell you it’s been driven by a lot of the complexities associated with the damage to the plant, so we’ve had as I mentioned earlier, we’ve had to go in and wait on utilities being ready, the complexity of working in both the damage repair area as well as the getting the expansion has just put a very crowded and complex stage there. So, I would tell you that, that is one of the major drivers for us but there is certainly isn’t unfortunately any incremental return to come through us from that investment.

Stephen Maresca – Morgan Stanley

Okay, understood. And then moving to Bluegrass, Alan, you pushed it out but you’re still talking quite favorably on the project and is your sense that producers are eventually going to be willing to sign up but this is just the timing issue and I guess what is causing them to hold off un-signing right now and still giving you confidence that they will in the future?

Alan Armstrong

Yes. Steve, great question and thanks. I’ll just tell you, if you look at what we cost for a producer the kind of commitment if somebody has got 30,000 to 70,000 barrels a day of commitment and you look at what that looks like on a roughly $0.30 a gallon by the time you pay for transport, frac and go through an export facility, that $0.30 a gallon you put that down to 30,000 to 50,000 barrels a day and call it up for 15 years, that’s a very, very large commitment from many other producers we’re dealing with. And it’s just taken time for them to get all their approvals and work through all of the issues and concerns that they have with that because it is a very, very large commitment if you do the math on that.

And so I really think that’s the practical issue we’re dealing with. We have some very engaged customers, I think as I mentioned lot of our customers see this opportunity just like we do, that it is essential piece of infrastructure. I think some folks would just like to see somebody else get it well and hopefully beyond the curtails of that. But, frankly we’re going to have to see that a good amount of financial support before we push through with additional investment.

Stephen Maresca – Morgan Stanley

Okay. And I appreciate the – moving away from Bluegrass and your comment about discussions with Soroban, Corvex. I want to know if you could just talk about any discussions you had with respect to the Access 50% GP interest held by GIP, is it something that you would ultimately like to own at WMB and is it something that you’re working towards ultimately?

Alan Armstrong

Well, I would just tell you, we think the ACMP business is a great business, we think it would be a great compliment to Williams and in a lot of ways both from management team standpoint as well as the business structure and the contracts and the focus on natural gas. So, it’s very much in line with our strategy. But of course, so I think fundamentally the answer to your question is yes, we would like to look towards bringing in the synergies of combining those businesses. But, there is another party involved and that means there is a value trade to be added and we have to make sure that, that value trade really make sense for our shareholders. And because we do have so many great investment opportunities in front of us right now, we got to keep that in bounce as well. And so, answer to your question, yes we’d love to do it but it’s – but at the right price and at that right timing as well because the bigger area we get in, that’s the more expensive that likely to be come soon.

Stephen Maresca – Morgan Stanley

One quick follow-up, are there active – would you describe as active discussions in that – for this or not right now?

Alan Armstrong

No I wouldn’t describe there is being any active discussions, I would say we continue to study the opportunity from our own perspective, but I wouldn’t suggest if there’s any active discussion with GIP on that.

Stephen Maresca – Morgan Stanley

Okay, thanks. Finally, very quick one from me. Do you expect to have IDR waivers in 2014? I saw that you didn’t have them in the fourth quarter.

Alan Armstrong

No, we do not intend to have IDR waivers in 2014.

Stephen Maresca – Morgan Stanley

Okay. All right, great. Thanks very much for the color, guys.

John Porter

Thanks Stephen.

Alan Armstrong

Thank you, Steve.

Operator

We’ll take our next question from Abhi Rajendran with Credit Suisse.

Abhi Rajendran – Credit Suisse

Hi, good morning guys. How are you?

John Porter

Good morning.

Alan Armstrong

Hi, Abhi.

Abhi Rajendran – Credit Suisse

Couple of quick questions, you increased lot of your assumptions on your commodity deck, but your outlook was largely unchanged. I guess is this just a function that most of the commodity movements largely [indiscernible] sells out or there is some volume offsets, if you could provide some color on some of the puts and takes, that would be helpful.

Alan Armstrong

Sure. Yes, really it is very much an offset, so you’ll see of course some higher NGL prices just reflect the current market. And you’ll see the slightly lower ethylene prices and of course all of that is up against the higher natural gas price. And so, as I mentioned in my comments, really those – all of those work to offset each other primarily, so really fairly a little movement in the overall business on that.

Abhi Rajendran – Credit Suisse

Okay, got. And on the top of ethylene, ethane prices, I mean could you talk a little bit about your thoughts on margins for Geismar over the long run obviously after it’s up and running the ethane in spite recently but there is plenty of supply coming on line. And on the pricing side, ethylene is largely driven by crude, international crude. So, at least some of the puts and takes there and your thoughts on how margins will shape up over time?

Alan Armstrong

Yes. Abhi, I’m going to ask John Dearborn to take that question for us.

John Dearborn

Sure. And thanks very much for the question. Starting with the – let’s start with the short-term look at ethylene. As we look back over our shoulder coming out of last year an anticipation of the second quarter turnarounds that are in front of us, I think there are three fracers that are about to turn around in the second quarter. The industry, if you look at the AFPM inventory, they had built the inventory and our estimate is that they built somewhere between £700 million and £800 million through the end of its year, that’s roughly of how much ethylene will be needed in the second quarter.

I think on the backs of that, we saw the weakening prices in the first quarter but it’s our expectation they’ll went up again into the second quarter and that’s – and then back to what we would consider normals for the year in the later part of the year. And so, I think that’s the way we see this year playing out. If we look at ethane I think in the short term, ethane is facing some operational difficulties in the Gulf coast mainly related to [indiscernible] as all the new fractionators have built there in the Gulf Coast. I think folks just challenged in moving the inventories around it’s necessary because of some [indiscernible] difficulties. We think that’s going to clear it out over the short period of time and as a result coupled with – as a result, I think that we’re going to see the ethane prices drop back to what would be a more normal level in the $0.30 per gallon and the nature of things what we’ve got not in our guidance.

So, I think that takes care of this year’s view. So, now as we look forward, the next significant trenches of that will increment in 2017, 2018 timeframe. So, our expectation is on the back of oil staying high and [indiscernible] being relatively to oil that our ethylene margins through that period until we see new significant supplies of ethylene come on in the later of this decade, I think our ethylene margins are expected to remain pretty strong.

Abhi Rajendran – Credit Suisse

Okay, great. That’s helpful. And then one last quick one if I may, could you maybe talk a little bit about re-contracting on the Northwest and Transco pipelines in terms of what’s out for renewal, how we should think about changes in transportation rates? Obviously, and Transco was running pretty close to full, Northwest is not quite there but any color there would be very helpful.

Alan Armstrong

Okay, great. I’ll ask – we’re in very good shape on that as well as Gulfstream. I’ll ask Rory Miller to take Transco and then Allison Bridges can give any response on Northwest. So, Rory, if you’ll take that Transco question.

Rory Miller

Sure. Hi, Abhi. And that’s good question. Just thinking about Transco a little bit, we’ve got what I would call some pretty fresh market signals around pricing with our new Atlantic Sunrise project and although we’re not really disclosing all the information on that right now but the rates are above – significantly above where our system rate is. I think we’ve got an average of six years or so on contract links there. But, we believe that with the change of the system supply coming in both ends and the kind of growth that we have from the market size, it’s truly a supply push market pull kind of scenario.

We believe if those contracts roll off that reopening those contracts is going to be very attractive for our end users, that’s a good – we don’t think anybody in the marketplace will be able to touch the opportunity that the LDCs have to just reopen those contracts. And in fact, that’s what we’ve seen as contracts roll off, we’ve not seen any pressure at all in terms of getting those re-contracts. And so, it’s kind of a – and it’s very healthy situation and I think do in large parts just in the quality of the service and the positioning of the asset.

Alan Armstrong

Great. Thank you. And Allison, if you’ll take the North question on Northwest.

Allison Bridges

Yes. On Northwest, we are fully subscribed even though we don’t run at a 100% load factor day-in and day-out, we do contracts that are fully subscribed. And I believe on average, we have a remaining term of over nine years. And we continue to be able to extend terms with customers. Additionally, we’re really starting to see I think some exciting new market flows opportunities come to the Northwest, showed its potential I mean fertilizer plant potential [indiscernible] methanol plants for export. So, I think that not only will that continue to bolts well for our existing capacity, I think longer term, it will also we’ve had some extinguishing opportunity.

Abhi Rajendran – Credit Suisse

Great. That’s sounds very helpful. Thank you very much.

Operator

We’ll go next to Christine Cho with Barclays.

Christine Cho – Barclays

Hi, everyone.

Alan Armstrong

Hi, Christine.

Christine Cho – Barclays

In the Northeast, your processing volumes was a bit stronger than I would have expected. How much is any of that was due to benefiting from its third party outage?

Alan Armstrong

There was some in the month of – mostly in the month of December. There, Christine it came from the Natrium plant being down and I think it was around very but up to about $50 million a day during the month of December.

Christine Cho – Barclays

Okay. And then, if I look at your NGL production, it looks like you guys may have your fractionation capacity, maybe at the end of 4Q or sometime this quarter? Is that the case and is there a new frac in that online space?

Alan Armstrong

Yes, we are up against the limits on the base frac and the second frac we are – we’ll be commissioning here in of course in first quarter.

Christine Cho – Barclays

Okay. So, was there a buildup in NGL volumes exceeding to get fraced or not?

Alan Armstrong

No.

Christine Cho – Barclays

Okay. Going to Bluegrass, was there – maybe more acreage dedications than you would have liked and not enough minimum volume and or shipper taking that in? Is the delay in the pipeline more about reducing your volume risk and that’s not – that only going to happen when you just feel more pain in netbacks. Also, of the smaller projects that have been announced since your original announcement, have the project played a part in pushing back your timing?

Alan Armstrong

Well, first of all on the acreage dedication, ours is not falling, we certainly appreciate both of those as contributions but clearly we want to have a base load of revenues that we can count on initially. And so that certainly is major part of the issue. Secondly, as to the smaller project, I think those are great projects, I think they’re needed but they don’t provide the kind of long-term underground storage of opportunities that you get with the Gulf Coast, it covers more of the diversity of the markets for both the growing Petchem business as well as the export opportunities that are very large scale in nature and well protected ports. So, I would just tell you that I think we’re sided those other projects exist because we think the growth in volume certainly is dictating those kind of solutions, but we really haven’t seen that as a big deterrent for producers committing the Bluegrass.

Christine Cho – Barclays

Okay. And then last one for me, can you provide an update on the PDH facilities, lastly heard – I heard it down to two international players, two players I guess who are interested in building derivative plant alongside your facilities, but would like to know if there has been any progress there?

Alan Armstrong

Yes. I’m going to ask John Dearborn to take that as well.

John Dearborn

Yes. Christine, thanks for the question. Yes, we made some good progress there, we actually nodded down to one person and we are entering into definitive agreements on that. It gives couple of months, so that – and probably [indiscernible] will be able to bring you good update on where that project is at that stage but progressing is expected at the moment.

Christine Cho – Barclays

Okay. Thank you.

John Dearborn

Thanks.

Operator

We’ll go next to Jeremy Tonet with JPMorgan.

Jeremy Tonet – JPMorgan

Good morning.

Alan Armstrong

Good morning.

Jeremy Tonet – JPMorgan

I was hoping just to possibly drill down a little bit more on the Northeast G&P. Would it be possible to quantify how much weather impacted the quarter dollar wise?

Alan Armstrong

I would tell you it wasn’t very large actually, I’d say some of the more significant issues were line breaks in a number of one-time operational expenses and some write-downs and so forth. But not too big of a volume impact from weather, one impact though that, that we did suffer was the ethane limitations going in to the Teco system. And so without the ethane system being up and running yet there were constraints that Teco imposed on points like the [indiscernible] connection that required curtailments there. And so that did have some impact on the volumes in the fourth quarter.

Jeremy Tonet – JPMorgan

Great. Thank you. And then as we look forward into 2014, I was just wondering if you could provide any color on how you see the segment ramping up over the year, do you expect first quarter to be similar to fourth quarter or a steady ramp across the year or any step change in any given quarter?

Alan Armstrong

Well, some of the big projects that we have coming on of course, is the Gulfstar project which will come on in the third quarter and the project – the Keathley Canyon project which comes on at the beginning of the fourth quarter and then the Rockaway Lateral project. Additionally, though the projects in the Northeast, many of which will come on either at the very end of the first quarter or the second quarter, really are some big drivers not necessarily just the volume but to the rate that we achieved for those services. And so even though people come at custom to working at volume there a lot of that will just be an increase in rates. So, those are really some of the big projects I would say. On the Canyon system, sorry on the system in Susquehanna Supply Hub area with Cabot, those volumes continue to grow throughout the year and we’re really excited about the continued growth up there and we’re working very hard to keep the infrastructure out in front of that growth up there but that’s pretty well steady, that growth to be pretty well steady throughout the year.

Jeremy Tonet – JPMorgan

Okay. So, specific to the Northeast G&P, it sounds like going into the second quarter, that could be a bit of a step change there?

Alan Armstrong

Correct.

Jeremy Tonet – JPMorgan

Okay. That’s it from me. Thank you.

Alan Armstrong

Thank you, very much.

Operator

We’ll take our next question from Harry Mateer with Barclays.

Harry Mateer – Barclays

Hi, good morning. Two from me, the first can you just talk about whether your thoughts and need to have [indiscernible] that WMB is involved and whether that financial policy, might be part of your discussions when you consider taking advantage of structural and transformational opportunities that you mentioned at the start of the call?

Don Chappel

Hi, Harry. This is Don Chappel. Good morning. Certainly, I’d call it policy and desires have been to maintain investment grade readiness in Williams. We think that it provides a lot of flexibility and ability to be opportunistic particularly during very challenging times for the high yield market has been locked up. But having said that, we’re certainly open-minded to other paths to create more value that would have to be something compelling, that would cause us to deviate from the path that we’re on. So, again we continue to be open-minded but we think it will take a compelling value creation situation in order for us to deviate from our current path.

Harry Mateer – Barclays

Okay, thanks. And then just a follow up on Transco and Northwest earlier – appreciate the commentary in rolling contracts. But, you said there’s been no issue regaining contracts renewed and extended but I’m just wondering as the pricing went stable as well or do you feel like you’re giving up some pricing to get better?

Alan Armstrong

Rory, will you take that please?

Rory Miller

Sure. Yes. Harry, we really haven’t seen price pressure on those re-op up contracts. If you look at where our system rates are, they’re probably the lowest cost opportunity that people have in the marketplace. And so, the other thing is so many of our the LVCs that we serve it’s not like we’re just dropping off large volumes of gas, of gas at one point and some of our bigger customers we got over 40 delivery points. And so, when you think about the way that we’re distributing that gas into a 60 or 70 year old distribution system and the low ranks that we have that they can re-op at, it’s just really hard virtually impossible to replace those with gas from a new competitor.

Alan Armstrong

And to be clear on that, we haven’t discounted any of that firm, that’s a 100% contracted and the rates we’re getting set by those rate cases. But to those long haul 100% firms, there is not any discount, there may be discount in the production area for IT and so forth but on the long-haul firm.

Harry Mateer – Barclays

Great. Very helpful. Thank you.

Alan Armstrong

Thanks.

Operator

We’ll go next to Ted Durbin with Goldman Sachs.

Ted Durbin – Goldman Sachs

Thanks. I guess first question from me, it’s WMB level you’ve obviously reduced the CapEx here with Bluegrass being pushed out. I’m wondering if you can just talk about capital allocation, thoughts on the dividend, I don’t know what share buyback keeping dry [indiscernible] acquisition. What did you do with the extra cash, now you have here filled with oil?

Alan Armstrong

Don, you take the question.

Don Chappel

Ted, this is Don. I would say that the extra cash flow now is still going into some of our growth projects like CNRL. And we’ll see what Bluegrass feels but for the near term that extra cash is being reinvested in that Canadian business, longer term I think we have a lot of options and we’ll have to see how things play out here in terms of investment as well as all the other options that we continue to evaluate. I think as Alan mentioned early on, that we continue to evaluate kind of all the options and we’re very open to possibilities that we’ll create additional value.

Ted Durbin – Goldman Sachs

Okay, great. And then, we sort of talked about it in a little bit but can you just give us a sense on Atlantic Sunrise, the returns we already modeling in there, it sounds like it’s higher than your current system rates. I think there is a mention of [indiscernible] revenue, just give a sense of what kind of return from the $2.1 billion of capital we should expect?

Alan Armstrong

That looks like about without providing specific returns there, it does look like about a seven multiple on that project, of course that’s a little better than you normally would see on a pipeline project and some of that is driven by the fact that we did have the competitive advantage of having a lot of that service being provided by the existing system. And so, that allows for some higher returns than normal.

Ted Durbin – Goldman Sachs

That’s great. And then, last one from me is it [indiscernible] now a little more bullish on the Gulf. Any thoughts on potentially a second Gulfstar here as you’re getting close to completion of the first one, what’s the opportunities that look like right now?

Alan Armstrong

I will first of all tell you one thing we are very excited about is the tiebacks that we’re seeing to both Gulfstar One and to the original Devils Tower spar and I’ll remind you those two facilities are fairly close together and so there is a pretty nice area there that we can serve from those two spars and we are seeing some nice tiebacks and certainly the Gunflint tieback is a big boost to our expected economics for Gulfstar and came on much earlier in our assumptions, in our projects like that we assume some tiebacks for the future but this one came on much earlier than we had expected originally for that project. So, that’s very positive and of course we’ve got a couple of tiebacks to Devils Tower as well.

On the new spar front, there – we have many projects that we’re out there working as you look out into the further reaches, I would tell you we’re pretty excited about some of the opportunities that we see to serve P-MAX with some of their big deepwater finds which I’ll remind you are just South of our Perdido out of the Perdido Fold belt and the – our pipeline to go up to serve Shell’s projects at Perdido Norte. So, showing by we’re very excited, we’re seeing a lot of interest in the product but we don’t have any capital in guidance right now, we don’t have enough confidence in those projects at this point to have any capital embedded in our guidance right now.

Ted Durbin – Goldman Sachs

I guess, that I’ll leave it at that. Thank you.

Alan Armstrong

Thank you.

Operator

And we’ll take our next question from Carl Kirst with BMO Capital.

Carl Kirst – BMO Capital

Thank you. Good morning, everybody. Just maybe a few clean up questions if I could, Alan maybe – going back to Bluegrass, if we get abandonment for abandonment in March, do you see that playing any type of catalyst or would did anyone have any concerns over that as they may have with other alternative projects. And two, could you helps us with any color, maybe you saw from the international Petchem community as far as going through Moss Lake and perhaps getting capacity on Bluegrass from that end?

Alan Armstrong

Yes. Well, those are both really, that’s good questions. First of all on the abandonment issue on Texas Gas certainly Boardwalk is in control of that issue and I would defer that question to them, it certainly at some point the timing of that abandonment would certainly play into the decisions on Bluegrass and a catalyst for a decision, I would just say we’re not certain of the timing on that, I think we certainly work closely with Boardwalk but they’ve been working to manage that issue but it’s – it at some point that would likely become an issue as abandonment order would come out and decision would have to be made in terms of which directions to take there.

On the question around the international players, lots of interest, a lot of big interest I would tell you from a lot of international players. And I think there is some great strategic match up there in terms of what we’re trying to accomplish in the markets that we’re trying to present for our producers in the Northeast. But, I also would tell you the challenge to that is it is a very slow process in terms of working through all the approvals not within, not regulatory or anything like that within the governance within those very large multinational corporations. And so, we’re excited about it in strategy but it is a – it’s a long arduous process to gain approval on that. And so we’re not waiting around, I would just put it that way, we’re not waiting around for those approvals, we’re moving on. And – but we do have lot of exciting talks there and we remain very excited about that strategically but we’ve got to execute in the near term sometimes in those parties can move to.

Carl Kirst – BMO Capital

Okay. Appreciate the color. Two – two last questions if I could in understanding with the Canadian PDH we haven’t seen the first one year I don’t want to say put the cotton from the horse but to the extent that my understanding was at the end of last year we were looking at perhaps moving to two different companies and that led into the potential, if even accessing the twin of the project. Is that something that is still progressing or is it more at this point look to get the first one locked up under construction and then will perhaps assess it tuning at that point?

Alan Armstrong

Great question, Carl. I’m going to ask John Dearborn to take that.

John Dearborn

Yes, appreciate the question as well. Yes, on the second PDH is certainly still a bright spot in our future that we want to keep our eye on but I think you got it exactly right that we need to have success with the first one but we’re ready to rotate fixed up into the second. The marketplace though is continuing to express great interest and in fact the partner that we’re talking with is interested in the second one as well. So, just person is interested and then we’ve got [indiscernible] long list of folks that have come and approached us about number too. So, we’ll not – I guess I’ll just say stay tuned, it’s more future growth opportunity for us up in the Canadian franchise.

Carl Kirst – BMO Capital

Excellent. And then final question if I could, maybe one for Don and understanding that this is sort of one of the risks that were outlined, insurance recoveries for Geismar and the risk of perhaps oversimplification, is there any additional color to share that, say for instance of the $125 million second payment that should be coming this quarter. Can you express that in any – terms excuse me, did versus ask of what you had requested from the insurance companies versus what they were comfortable at this point paying out?

Don Chappel

Carl, the insurance paid is 100% of our claim to-date. So, I think to-date they paid a claim was filed, I think we’re pretty well paid up through the end of the year now, in fact obviously the business interruption loss amounts every month. So, we’ll continue to update the claims process and make request for additional payments and we’ll see where that takes us. But the actual claim is based on – actual losses, so we can’t expect to get paid for February until sometime after February ends or – March until after March ends and we know what the real price is. We’re in the market and therefore the basis of our claim. So those will kind of kick-off periodically.

Carl Kirst – BMO Capital

Excellent. Appreciate all the color guys.

Alan Armstrong

Great. Thanks Carl.

Operator

We’ll go next to Craig Shere with Tuohy Brothers.

Craig Shere – Tuohy Brothers

Hi guys.

Alan Armstrong

Hi Craig.

Craig Shere – Tuohy Brothers

Couple of questions here, Alan, I missed probably both comment at a couple of times being open-minded to transformational opportunities but Don kind of emphasized, the bar was set high for giving up that investment grade credit rating and also noted that WMB level of free cash flow is already spoken for a bit in the near term. My first question is do you kind of see these ongoing internal discussion and discussions with investors being an ongoing long-term issue to keep in mind or something that’s more of a 2014 catalyst?

Alan Armstrong

Well, I would just say – it’s a great question Craig and thank you. But I, we’ve always have got our eyes open to any arbitrage that’s available in the market and any additional value you can add to our shareholders through either transformation or structural changes and as I mentioned earlier I don’t think anybody can accuse us of not having been aggressive and in fact we certainly been a leader in many of the structural changes over the last several years. And so, we’ll continue to look for those and I think the drivers will be what the market is valuing and how our businesses are being best valued in the market and we’ll continue to look for those opportunities as time goes by.

So I don’t, unless there became a roadblock between a really good idea and what we are willing to do, that would be a catalyst that might limit at 2014, I just don’t see that, I think we’re very well aligned with both Corvex and Soroban in terms of looking for the great value. I think their perspective is that we’re well undervalued relative to marketing to our peers and that we’ve got the best growth story in the business and we ought to be getting valued better than our peers and not just at par with our peers. And so, I think they see a huge value gap there and I’ll have to say I share their perspective and are very well aligned and we’ll continue to work with them or anybody else that has good ideas on how we could achieve that value.

Craig Shere – Tuohy Brothers

Great. I appreciate that. And a couple more, with Gulfstar One, pending completion, do you see this completion successful on-time completion being a catalyst for other significant deepwater projects?

Alan Armstrong

I would just tell you, I think our producers, I think Hess and Chevron and particularly Hess just cursers more visibility for them are going to wind up looking really smart on this project both in terms of the time that may brought their production to market and the capital that they have tied up with the lack of capital they have tied up. So I think it’s going to look like a really good project for them. It’s going to look like a good project for us because we’re bringing in third party volumes and we’re marketing the project for that. So, I think when people sit back and analyze that, they’re going to look pretty smart, I think Hess wanted to do more business, Chevron wanted to do more business like that and I think their peers will get pressured to do that kind of business as well. So, I think this is a smart solution out there and certainly it gives – we’ll continue to gain confidence in our ability to execute on these kind of projects as well as the producing community.

Craig Shere – Tuohy Brothers

Great. And last two small ones. Can you provide some more color on that $20 million Petchem services pipeline project write-off. And as a follow up to obvious question about long-term commodity price outlook, and I know this is going out a bit but if we’re thinking maybe nat gas and even ethane pricing especially could be a headwind towards the end of the decade, would you consider leading up to that balancing out your short positions by expanding mid-stream processing POP exposures through development or acquisition in new processing?

Alan Armstrong

First question on the write-off in the Petchem services, that was related to a an NGL extension up in the Northeast a line extension, that threw some potential partnering arrangements, we don’t think we need any longer. And so down the better solution and the investments that we’d made in the write away and so forth developing that project. So, that’s the first one. And then secondly, on the commodity price outlook, the – certainly the natural gas pricing is one that is kind of better sweep for us in the short term it put pressure on our NGL margins and then therefore ultimately on the ethylene spread as well as ethane prices rise as you mentioned.

But the good news is and I think this is very positive news is that just as we’ve stated we’re really trying to move forward to being a volume driven company and with this short beyond from the producers the gas and the NGL prices that we think are going to spur additional drilling and additional volumes into our system. And so frankly I think it’s very, long term very healthy for our business. In terms of contract restructuring, I think you’ll see that we continue to restructure into away from the business and if you look at how rapidly our fee-based business is growing over the period it’s tending to push out the importance of those NGL margins. And so we’ll – we’re always looking to try to reduce the risk in exposure but it has to be done with an eye towards really the expected net present value versus the commodity risk and so but we’re always looking to do that and see great value and more predictable cash flows. And so we’re always working towards that.

Craig Shere – Tuohy Brothers

I guess my question there was a little more focused on an appetite, even if the individual investment is not as high return in balancing out your commodity exposures longer term. So, you have a little less volatility. So in other words would you be willing to go in the fresh mid-stream commodity exposed operations as that would balance out your existing risks?

Alan Armstrong

Well, I would say that I don’t see adding POP contracts as reducing risk all that much frankly. And so, I would say you’d see us investing in more fee-based investments. I think POP is a different kind of investment I really don’t see it balancing out all that much risk. We do have some contracts that do reduce risk like our lower amount in contract with Chevron that’s a percent of gas and that does but that’s not just limited to the processing, there is some effects on the gathering business as well. And so, we certainly will look to those kind of opportunities that reduce our exposure to natural gas but not necessarily adding linked in exposure to NGLs.

Craig Shere – Tuohy Brothers

Fair enough. Appreciate it.

Alan Armstrong

Thanks.

Operator

We’ll go next to Sharon Lui with Wells Fargo.

Sharon Lui – Wells Fargo

Hi, good morning. Just a couple of follow ups, for the Atlantic Sunrise project do you anticipate that seven times multiple at the spar or is there a stair step in the commitments to get to the full capacity?

Alan Armstrong

No, that is both initial and end of term revenue. So that’s fully contracted from day one.

Sharon Lui – Wells Fargo

Okay, great. And then also for the planned Canadian dropdown, any change in the target multiple, I think you previously mentioned around seven times?

Alan Armstrong

Sharon, we said less than seven times and I think we’re still on that same fiscal.

Sharon Lui – Wells Fargo

Okay, great. And I guess given the recent news on Boardwalk, do you anticipate that this could have an impact of bearing on shipper’s decision commit to Bluegrass or may be on the way you would like to structure the JV as the project goes forward?

Alan Armstrong

No, I just remind you I’m certainly going to be careful do not speak for Boardwalk here but I will tell you that Boardwalk has been very clear with us from the inception and certainly recently reiterated that Lowe’s really stands behind the bulk of their capital commitment. And so we did not worry the recent reduction in their distribution and the impact that’s had on their company. So we were very excited to have them as a partner, they’ve been a great partner to work with and really don’t see any issues there because they’ve got such strong backing from Lowe’s on the project.

Sharon Lui – Wells Fargo

Okay, great. Thank you.

Alan Armstrong

Thank you.

Operator

We’ll take our next question from Timm Schneider with ISI Group.

Timm Schneider – ISI Group

Hey, good morning guys. Just – I was wondering if you guys can may be discuss what you’re seeing in terms of operating cost creep at some of your different service areas. So if I look at Northeast for example, volumes and revenues were up pretty nicely, I think 18% sequentially but that didn’t really push through to the bottom-line was just kind of just one-time issue there or is there something else going one?

Alan Armstrong

It really Timm. Thanks for the question. It really is has been a lot of one-time issues. We also have allocated quite a bit of cost the way we allocate kind of our support services across the company those get allocated on both the capital and the revenue basis and so the cost have been coming up directly with those allocations as well. But for the most part, the real issue was a bunch of one-time matters in terms of write-downs and so forth that on various assets and frankly we’re kind of cleaning up what’s been a pretty fast pace period up there. And I would tell you as we move forward, Jim Scheel and his team are going to be very focused on operational excellence and really fine-tuning our cost structure up there.

So I’m very confident in our team’s ability to do that. If you look at our overall cost structure across the entire company you’ll actually see that, that actually between our O&M and G&A actually reduced a little bit from 12 to 13 which is pretty impressive considering the amount of growth that we’ve been managing. So I’m very confident in our team’s ability to get after cost and get those in line but we’ve certainly been trying to make sure we got some of the reliability problems behind us and for the benefit of our customers and because we saw that is going to drop one. And I think we’ve done that and the reliability has been very, very impressive over the last six to seven months but it’s – it’s come at some expense to get it there and I think that’s a lot of what you’re seeing right now.

Timm Schneider – ISI Group

Sure. And as a follow up, can you guys discuss may be your preliminary funding plans for Atlantic Access, are you kind of happy but that’s $2.1 billion I guess CapEx outlay at this point and would you consider selling some of that down to another party?

Alan Armstrong

No, I don’t think we would be planning on selling that down. As part of the Transco system and as a result of that it’s not an individual project, the way like a Constitution project is, so Constitution is not part of the Transco system and it allows for that but being part of Transco makes that a little more difficult. Yeah, we like the risk return profile there and again most of that capital is in 2017. The amount of capital part in 2017 is pretty modest. So it puts it out in the period where we’ll have a lot of capacity and we are looking to make big investments.

Timm Schneider – ISI Group

Okay, got it. Lastly from me, on Constitution, I guess what are some of the big moving parts around being service date whether it’s going to be kind of end of 2015 or earlier 2016 and how some of the conversations going with producers in part of the woods?

Alan Armstrong

Well that, that is the Constitution system is fully contracted as you know and so the discussions are really more around what all we can do jointly to accelerate the permitting process. And really the permitting is the issues I mentioned earlier the FERC is certainly been constructive and they are pushing things along. But there are some permitting requirements in the state of New York that for various reasons can be a bit of a barrier. And frankly, I think we just got to work towards the right solutions that meets everybody’s needs on that, and I still remain confident that we can do that. I think it’s very clear politically that the infrastructure is desperately needed to serve the New England markets. And I think that bringing that to life clearly and firmly will help bring some reason to getting pass some of the permit issues that we’re facing right now.

Timm Schneider – ISI Group

Got. So, was that more at the state level or was it actually land owners challenging – challenging writes always?

Alan Armstrong

No, it’s a state permitting issues.

Timm Schneider – ISI Group

All right, got it. Thanks guys.

Alan Armstrong

Thank you.

Operator

We’ll go next to Faisal Khan with Citi.

Faisal Khan – Citi Hi, good morning it’s Faisal from Citi. I hate to be a dead force but I think you just go back to sort of the response that you guys have to the activism in the market in your stock. Is it going to be like a formal response you guys – from all you guys to the activist shareholders sort of demands or is there going to be any change in the Board over the next several months? I know that there were some request by the activist to take Board seats too. Just wondering is there a timeline when you have to respond to them or put out a formal sort of response and discuss sort of whether the strategic options at least adopt any strategic options that they’re recommending?

Alan Armstrong

Yes. Well, really the only thing they’d really asked for at this point is the Board seats. And so that’s where the discussions have centered frankly. And as you noted we – I’m sure we put out an 8-K announcing that we had expanded or extended the window for nomination post, the post this call in our 10-K release. And that really was to eliminate any disclosure kind of risk and really allow the parties to have a more thorough discussion post the – that information being out there. So, I think you should see that as very accommodating on the company’s part and very interesting and continuing those discussions.

Faisal Khan – Citi

Is there a sort of a timeline when some of these discussion went in and you guys all present your sort of findings to the market or is it sort of just ongoing?

Alan Armstrong

I would say it’s ongoing and certainly, we didn’t try to speak for Corvex and Soroban. But I think from William’s standpoint, we certainly are interested to reengage in the discussions and again just given the timing that we were up against with the window closing ahead of 10-K in our earnings release, we just wanted to make sure that we didn’t that the compliance issues were first and foremost in the attendance of the various issues we need to deal with there.

Faisal Khan – Citi

Okay, fair enough. And, just going back to the funding on Atlantic Sunrise, so do you guys envision sort of issuing sort of thick units in the future for, to fund the equity in this project or do you think that you are the, the cost of equity will be low enough that WPZ to sort of to move forward with the common equity offering?

Don Chappel

Faisal, one is that significant funding is a long way out, as I mentioned the bulk of that is in 2017. So, we believe – we expect the WPZ cost capital to improve significantly, particularly as we as Alan resided here we’ve got a lot of projects that we are expecting to go into service here in 2014 and 2015 which will really boost WPZ cash flow and coverage and as we do that then the coverage comes back to a, I’ll call it a more attractive level, we would expect WPZ will try to align with fundamentals. So I’d say we’re optimistic that PC will come back in line here over the next year or so.

Faisal Khan – Citi

Okay, thanks guys. I appreciate the time.

Operator

We’ll take our next question from Chris Sighinolfi from Jefferies.

Chris Sighinolfi – Jefferies

Hey, good morning Alan.

Alan Armstrong

Good morning.

Chris Sighinolfi – Jefferies

Thanks so much for your added color, I’ll try to be quick. I appreciate you taking the call this long. I guess first Don if you could talk about maintenance CapEx realizing the prepared remarks you talked about some synergies that were realized in 4Q that led to the improved stand versus what you have guided in the third quarter? But just wondering a bit more about that given that we didn’t see any change in 2014 or 2015 guidance, is that more or just a one-time synergy? And if so, what sort of additional color around it?

Alan Armstrong

Let me take that if I could please. This is Alan. I think first of all the – couple of drivers to that. We had a lot of maintenance capital items that had been at driving a lot of the cost in 2011 and 2012 so they were Clean Air Act issues, there was a lot of required inspections on the pipeline to be done by a certain period smart pig inspections. And so we got a lot of that out of the way. We also, if you think about reducing risk on your systems and your asset integrity issues, you always want to hit the systems that have the most risk on them first. And I would just tell you that our cost have been based just assuming that we would continue to find the same number of anomalies on our systems as we complete those smart pigging and some of the hydro testing.

And in fact, as we’ve gotten further down the profile and the lower risk assets we’ve had less and less dig out, we’ve had less and less repairs required. And so, that has driven some of that out. In terms of – so if you’re the team that’s responsible for that asset integrity work when you’re doing your forecasting for that, you go in assuming you’re going to have a certain amount of digs and certain amount of anomalies to clear, and if you don’t find them, then those cost don’t show up certainly the big cost is in the repairs of that.

So that’s one item. And certainly, and because we had such rough winter out West in particular towards into the November and December timeframe, it did slowdown some of the works that we would have done in that period and would have expected to get done in the fourth quarter. And so, little bit of that get pushed into 2014 but it’s not like you miraculously had a bunch of new capacity to get the work completed so that tends to get pushed out into 2015 as well. And so, I would just tell you that we haven’t backed off at all in terms of maintaining the integrity of our systems and spending the right money. We’ve just been very fortunate that a lot of the early work that we did was on some of our pipelines that needed the most reconditioning and as we move into the less or the newer parts of our system and areas that we’ve had less issues, our costs are coming down as we do that pipeline inspection and asset integrity work.

Chris Sighinolfi – Jefferies

Great Alan, that’s very helpful. As you think about the 2014 and 2015 programs – and just as a quick follow up in what you have planned for asset integrity, might there be upside opportunities like that what you mentioned where you find less than and what you think in where you move into or is it kind of an entirely different aspect of the system?

Alan Armstrong

No, I think that, I think we’re having a hard time really believing we’re going to get that fortunate on a repeated basis. And so, I would just tell you our assumptions haven’t baked that in at this point but certainly that possibility exist but we just haven’t baked that in at this point. Secondly, I would tell you an area that may be an impact on that would be around well-connect capital again this is built in is because we’ve seen gas prices and NGL prices move up so nicely. We may see more drilling coming on which might increase our well-connect capital towards the last half of the year because that’s – we love spending that money to the degree that it’s producing revenues for the future but nevertheless given away we account for maintenance capital we would include that well-connect capital as maintenance capital.

Chris Sighinolfi – Jefferies

Okay, great. And I think that actually [indiscernible] driving nicely. I have two questions I have on the West segment Alan. We saw the ethane equity volumes come down again in a big way in 4Q obviously recognize rejections been something we’ve scrupled with all year but I was curious, two questions out there one is there something in particular that drove the change in 4Q that can be sort of isolated and highlighted. And then two, as we think about 2014 and 2015 with your commodity construct we’re seeing today if you’ve had any sort of your eye views around what the volume could be out there, I did see WPX had numbers out last week calling some increased number out of their [indiscernible] program for example plus sort of how that might translate into what you guys are expecting out West?

Alan Armstrong

Yeah great question. I’m going to ask Allison Bridges to take that for us.

Allison Bridges

Yes, we did have some little bit of anomalies I think in the fourth quarter in that we were, third parties were actually continuing to recover and so we were actually giving them some of our equity ethane which was a positive thing from our financial standpoint. And additionally, we did have a contract that terminated at the end of the third quarter. So those two things caused a rather large draw in the fourth quarter. We have been seeing some declines in volumes as you said we are starting to see some good signs with increased gas prices as well as WPX announcing that they were adding rigs. So we do believe that a little bit out in the guidance period we’re going to start to see addressing some of those declines.

Chris Sighinolfi – Jefferies

Great, very helpful. One final follow up from me just to dwell into of what Timm had asked earlier about cost. Alan we did see a very strong beat relative to your guidance and in [indiscernible] obviously some cost continue in the north east you had mentioned as you have nearly a quarters about sort of this weak calibration or reallocation of cost more towards north east in the activity. Was any of that present in the fourth quarter or is that sort of, have you reached around right should we should expect from here?

Alan Armstrong

No and just so you know I mean I think if you’re just focused on the north east segment you’ll see movement if you’re looking at the total cost structure you won’t see that much movement as it relates that allocation because basically just pulling cost out of area whether less activity and less growth and its being applied again that’s done on a modified mass basis which basically takes in as a primary allocation is the capital invested and the revenues and so as both the capital invested and the revenues grow there it will shift more cost there. That doesn’t necessarily mean that the cost of that business directly is going up but it’s just is the way the method that we allocate cost across the business. And of course we need to do that because we have regulated assets in our business as well and so we need to make sure that we keep proper tallys (ph) on how we allocate to its cost and we keep a constant method going on how we do that. So to answer your question as you probably continue to see some allocated cost even though I would tell you in terms of the lack of operating profit performance in the north east for the fourth quarter very little of that was driven because we were already expecting that cost allocation. A lot of the drivers really bunch of one-time issues that we had in the fourth quarter as I mentioned earlier.

Chris Sighinolfi – Jefferies

Okay great. I appreciate all the added color. Thanks again.

Operator

And we’ll go next Becca Followill with U.S. Capital Advisors.

Becca Followill – U.S. Capital Advisors

Good morning guys. On [indiscernible] are these just its just .7 bcf a day capacity incremental just hard to put on a system that’s really running from south to north?

Alan Armstrong

Yes.

Becca Followill – U.S. Capital Advisors

So it doesn’t reverse flow on any other system to cannibalize the existing system or is it all incremental?

Alan Armstrong

Well I think if you just looked at our initial flows back then and you look at our initial flows after the project is done those two numbers were added to it.

Becca Followill – U.S. Capital Advisors

So it won’t displace any of the existing roughly 60% of contracts that we have rolling off by 2016?

Alan Armstrong

No the, where the projects are going in delivery forward will be incremental and so I think you could, really if you think about it, it’s the amount of gas going off the system that you would see and so while you may see the benefit of physical displacement allow us to increase our capacity so in other words we don’t have to build as much capital as you normally would think to get incremental volumes because you got gas coming from both directions. The volumes leading the system will increase by that.

Becca Followill – U.S. Capital Advisors

Okay thank you. And then on Bluegrass when should we expect a go or no go decision?

Alan Armstrong

As we mentioned earlier we’re still in discussions and I don’t really think we should pin that down but because that frankly its some really big commitment and we think it’s the right project and it’s taken sometime to get people to make those huge long term commitment but I’m really willing to put a subset of timeline on that at this point.

Becca Followill – U.S. Capital Advisors

Great, thank you guys.

Operator

And with no further questions in the queue I’d like to turn the call back over to Alan Armstrong for any additional or closing remarks.

Alan Armstrong

Great thank you Dana. Well thank you everybody for joining us we remain very excited about the tremendous growth that we’ve got ahead of us and a lot of the big capital investments as I mentioned really on the back a lot of equity are really starting to come in to 2014. We’re pleased with the performance we saw up to the fourth quarter and particularly pleased with some of the operational reliability improvements that we’ve seen in the process systems and so we look forward to talking to you in the future and continuing to talk about the great growth story that we have here at Williams. Thanks.

Operator

Again that does conclude today’s presentation. We thank you for your participation.

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