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Williams Partners L.P. (NYSE:WPZ)

Credit Suisse MLP & Energy Logistics Conference

June 11, 2014 09:30 AM ET

Executives

Rick Rodekohr - VP of Finance, Planning and Analysis

Analysts

Unidentified Analyst

We’re going to get started. So for next presentation we're delighted to have Williams here, to tell you all about their story and the opportunities they had both for the WPZ, LP level and for WMB as well. We’re delighted to have VP of Finance, Planning and Analysis, Rick Rodekohr. I would now hand it over to Rick.

Rick Rodekohr

Thank you, and I'd like to thank John and [indiscernible] and their team for including Williams and asking us to present today. And with me today is sitting up here in front is Sharna Reingold from our Investor Relations group. So I look forward to meeting with you today, and then anyone online, and certainly if you have any question, Sharna and I will be happy to follow-up with you.

Our forward-looking statements; and I’m sure you’ve all read and memorized.

Turning to our presentation, we believe that we are well-positioned to participate in this industry, what we call super cycle. What we are about is, is really participating in the infrastructure side of the infrastructure build of this super cycle. We think we have got the right long-term strategy and we have it at the right time. Basically our strategy is focused around; one, natural gas and natural gas products and derivatives; and then two, any basin that we enter we want to enter with scale. We want to be a major player in that basin. We believe that being there and being a major player certainly bring benefits to the customers that we serve and also allows us some scale in terms of the operating cost.

So that’s kind of the strategy that we focus on. We have some assets that we believe are positioned as well, if not better than most in the industry, and that’s really not by accident but rather we have stuck pretty close to the best on our strategy. We have invested in basins where we believe they have the most attractive and best values. That would be like the Marcellus for example. And then also we've been very blessed with just the location of some of our assets. If you look for example, at our Transco gas pipeline, we have two of the fastest growing supply basins, one the Marcellus in the north-east and then also the Gulf coast and Transco is basically a header system that attaches to both of those supply basins. So very fortunate with where our assets are located as well.

We see the market dynamics really serving as a tailwind for us. We spent the last three or four years based with lower margins, they’ve had impact on us. But we see that the gas supply are coming back to reasonable prices, and we think that that is going to serve as a tailwind for us as we go forward. We’re also blessed to have a large stable of potential growth and development projects. If you look at not only the projects that we have in guidance, but if you expand that and look at projects that are under negotiation, and also ones that they we're working on, we have in excess of $25 billion of projects that we’re chasing at this point in time. So certainly, with that level of capital, we need to have disciplined capital allocation, but we also need to make sure that we are very focused on the operational excellence and the project execution.

And so, to that end we reorganized at the start of 2013, we really set a focus on our engineering and construction group, also set up an OE, or an operational excellence group to make sure that as we pursue these projects that we could deliver them on time and on budget.

In the last 18 months since that reorganization we've also invested pretty heavily in systems. Systems that will support the tracking of what we’re doing in these projects and make sure that again we can bring them online on-time and on budget.

And then finally to be able to capture the value that we see out there with these projects, we need a strong leadership team. Alan has done a good job in assembling a team, a tenure year team that has got significant experience in the management, the construction, and the operation of energy infrastructure projects.

This slide is really key to our strategy. And really again, what our strategy is, is trying to ride the wave of the natural gas growth. And if you look at this, what we believe is that the supply comes first and then that's closely followed by the demand. And so we’ve certainly seen that, I think it's interesting, if you look at where gas prices are today and you look at the low storage levels, we are probably close to historic lows on our natural gas storage. But what you’re seeing is gas prices that continue to moderate. And we believe the reason for that is that the market has confidence that the suppliers will continue to be able to supply the gas and the infrastructure providers will be able to deliver that product to the markets that are so needed. And so really it’s that confidence that will build the long-term demand on the backs of the low cost supplies that we see in today’s environment and in the environment going forward.

This slide is really just to depict that what we're focused on is the infrastructure in building out the infrastructure that is required to get the best supplies to the best markets. What you saw maybe 20-25 years ago as you saw the majors who would go in find supplies but they were also very focused on developing the markets.

What we’re seeing today is a bit different, we have independent producers that are very good at finding gap and producing that gap very quickly but they are less focused on building the market. And so case in point would be a project that we announced a couple of years ago our Atlantic Access project, a key project to deliver gas from the northeast to the markets, we went out with an open season, got about 70% of that pipe subscribed, but that really wasn’t enough for us, we need 100% subscribed before we’re going to build the project so we pulled it off of the market.

We went out about three years later with a very similar project called Atlantic Sunrise, it was a bigger project, a more expensive project for the shippers but we ended up getting a 100% of that project subscribed. So again it is a market that needs developing a different set of producers today than what we had in the past and we think that that’s really Williams' niche is working on developing the infrastructure that can again bring the best supplies to the best markets. We’re really not trying to control the commodity or take the price risk but really just bring transparency between the supply and the demand through having toll roads if you will which will deliver the product.

This is a map of our assets, a couple of things I would like to point out here is just really where the assets are located. If you look on the East Coast you see our Transco pipeline, if you look on the West Coast Washington Oregon, that’s where our northwest pipeline is located along the I-5 corridor and then down in the Gulf Coast you can see our Gulf Stream pipeline as well as production area assets and deepwater assets that we have.

So the key points here are that if you look at our pipelines much of the growth is along the coast and that’s where you can see we’re located. Certainly Transco has got the northeast covered, northwest pipeline has got the northwest coast covered and then we have Gulf Stream or we have the Gulf Coast covered with our Gulf Stream assets. We also if you were to dive into the assets behind this map you'd find that we have significant scale in most all of the basins in which we operate which again is key to our strategy.

This is a good reference slide particular for those that may not be that familiar with Williams. We do have four operating areas as well as an investment in Access Midstream or ACMP and so I’ll quickly just walk through those. The first one we have is our west segment. The west segment is one that is probably our most mature segment and one that we would really inspire for all of our segments to grow up and be like. Because of the assets that we have we can generate very high returns, sustainable returns in west and we also have capacity out there because of prior investments that we can add additional gathering and processing at very little or no capital. So again with the commodity tailwinds that we see and if that were to lead to additional drilling the west would be very well positioned to capture much of that market and do so with very little capital investment.

Another segment we have is our Atlantic Gulf, this segment includes our Transco pipeline also includes the deepwater assets that we have. This is probably our highest growth segment that we have. Again, Transco is seeing phenomenal growth along its pipeline just because of where the supply is and the growing markets that they see both potential LNG supplies as well as power generation supplies power plants converting from coal to gas is leading to significant growth. And then also in the deepwater slide or deepwater side we have significant assets that we’re putting in service, I’ve got a slide on that in a minute but we’re seeing a lot of activity there, so really good growth and importantly really good fee based growth coming out of the Atlantic Gulf area.

On our NGL Petchem, this is really about connecting upstream supplies to the new and growing downstream customers that are desperately looking for those supplies. This includes our Geismar plant which we are targeting to restart at the end of this month and it also includes our Canadian assets where we’re taking off gas that is currently being flared and extracting the NGLs out of that and providing not only additional value for us but key environmental synergies for the area up there. And then it also includes some of our pipelines in the Texas Louisiana area.

And then we have our fourth segment which is our northeast gathering and processing. This one quite frankly has gotten off to a bit of a difficult start, these are the assets that we acquired from Cayman but we have put significant capital in recently, made a lot of structural changes, expanded the assets and we believe that we are well positioned right now to see significant growth coming from our northeast. Again it has been a bit of a challenge but I think we’re really well positioned as we go forward.

And then finally with respect to Access Midstream or ACMP, we currently own 50% of the GP of ACMP and we also own about 23% of their LP units. This is a very stable company with growing cash flows and solid contracts that support that, it’s also becoming a key piece of Williams' business where it accounts for approximately 10% of our cash flow as we get into 2015.

Focusing for a minute on our capital, again if you look at just what we have in guidance through 2016, we’re looking at growth capital of approximately $9 billion, that is related to projects that are currently either in construction or in development, ones that we have a very clear line of sight to in terms of the cash flow that they will generate. If you broaden the spectrum a little bit and you go out through 2019 and you look at project that are not only in guidance but those that we’re currently in negotiation on as well as ones that we’re looking at and more in the development phase. Again you see $25 billion worth of projects.

So a lot of activity that we have, a lot of potential capital to be invested but I think we’ve got a pretty good track record of turning some of these potential projects into projects that we actually commit capital to.

This is just another cut of that $25 billion, again this looks at it kind of year-by-year, when these projects fill in service and you can see for each of the years ‘14 through ‘16 that are in our guidance period, we have got a lot of projects that are going into service, and again clear line of sight of these projects, they’re supported by contracts, they’ll give us a clear line of sight into the cash flows going forward, and then beyond our guidance period when you get out to 2017 and beyond, we still have got a lot of projects, some that we’ve already committed to, like Atlantic Sunrise and others that are more in the development stage but again a pretty robust opportunity even post our guidance for additional cash flows coming into the system.

Focusing a little bit on couple of the projects and a couple of the projects that will be going in service in 2014, this is our Keathley Canyon, a significant amount of this line has already been laid, this is part of our discovery system, we own 60% of this project and our capital investment will be around $460 million, this is expected to start cash flowing in the fourth quarter of this year, this will provide some very great fee based revenues with this project, and its supported by dedicated long-term reserves and it also is in a great area where we think that we can attach additional reserves and associated gas to this invest increase the rates of return on this project.

Another project that we have going in service this year, a substantial one is our Gulfstar project; the execution on this has been really good. We’ve got it floated out, we’ve got it set and ready to go. We expect first oil to market in the third quarter on this project, again some strong fee based revenues, couple of the exciting things about this project, is this is one in which we can design one but build many. This is one in which we think has application to several producers out in the Gulf, this is underpinned the one we have is underpinned by couple of good counterparties Hess and Chevron, but again we believe that there is a real opportunity to design one and build many.

Another thing that's exciting about this is that we’ve already announced the Gunflint tieback. And so basically what these are is this is additional reserves that are coming on to Gulfstar and (working) [ph] those reserves, I am able to announce that before we even got to first oil on Gulfstar. So really helps the rate of returns on these projects, something that we look for when we go into these, is getting the tiebacks and so we’re excited about announcing the Gunflint tieback.

And finally the last project that I’ll focus on is our Atlantic Sunrise, this is a $2.1 billion commitment by Williams, this is a regulated pipeline, it’s supported by 15 year binding contracts. It’s 1.7 million a day, and this one will allow Transco to flow additional gas from the north out of Marcellus down towards the Southeast part of the United States and its supported by several customers, some of those are tied into LNG facilities, so this will be an important project as LNG ramps up but also an important project of bringing Marcellus gas to some of the power generating facilities that we see developing along the Southeastern part of the United States.

Switching a minute and looking at our business mix, we are really focused on attracting fee based revenues to our systems. You can see that as we ended 2013 we’re at 75% fee based, that’s growing to 77% by 2016, that’s probably not the important thing, what I think is important about this is if you look at the actual growth margin, it’s increasing 50% from the 2013 level. So we are up 1.9 billion from 13 to 16 and with that increases we’re able to increase our fee based revenues from 75% to 77%, so substantial increase in the growth margin that is underpinned by the fee based revenues.

If you look at those fee based revenues for a minute in 2016 you can see that 36% of those are underpinned by our regulated assets. That revenue stream really has a binding long term contract is supported, it’s really take or pay type payments that are fixed and very little credit risk associated with it, so very strong cash flow is there.

If you look at the 41% that’s supported by our fee based revenues on the midstream side, those fee based revenues are really a volume times rate. So there is some risk on the volume side. But given the portfolio that we see of where our volumes are coming from we think we’ve got kind of a clear line of sight into the revenues that will be generated in the volumes that will be coming out of the portfolio.

The other 23% is really kind of commodity based and it’s driven in part by our Geismar facility which accounts for 15%. Again, we think that as this Geismar facility ramps up at the end of June that we will have steady cash flows that are generated from Geismar.

And finally, I’ll just return back to our strategy, we think our strategy is really more relevant than ever. Again, we are focused on the infrastructure side of the build. We are underpinned by scale so where we go in, again we want to be large where we go in and we think that we’re getting some good tailwinds from the commodity environment where we’re seeing stable gas prices with the growing supply.

So with that I’ll be happy to entertain any questions we may have.

Question-and-Answer Session

Unidentified Analyst

Hey Rick, Just two questions, one, I was wondering if you could update us on the constitution pipeline you had in the slide as of 2015 project, right. And the other being propylene pricing little soft this year compared to last and just wondering how that’s affecting the business?

Rick Rodekohr

Well, on constitution we continue to believe that we have either 2,000 late 2015 or 2016 in service state. We were initially targeting a final EIF in June, well in this week in fact we [indiscernible] that we’re not going to get that. So we’re hoping that that might come in July, one month delay in that is not going to change our in service date and so we have no change there from what we’ve been saying. We have quite honestly been getting some challenges from the New York, DEC in which they are asking us to look at the benefits of building along the I-88 corridor. So we have done that. We honestly believe that there is less environmental impact from the existing route that we have proposed rather than trying to build along I-88 and so we’ve provided all of that information to the New York, DEC but we certainly need some of their approvals as we go forward with water conservation and things like that. So that’s really kind of the most current challenge that we see right now is with the New York commission. But we continue to believe that it will be 15 or 16 in service date. And so the other question was on propylene prices. And some softening, you know we look at our guidance and update it on a regular basis, Geismar at this point has been down we expect that to be up and running at the end of this month. So really minimal impact I think from many changes in propylene prices, visa-via what we have in guidance.

Unidentified Analyst

Thank you.

Unidentified Analyst

Many thanks. The project that you had indicated in the past with both work, are you allocating as such to some other project because there was some purpose of doing it. So are you doing something on your own instead of that joint venture?

And the second one on Geismar being that we had a problem last year, I think what was it in May or something. Is it necessary to have within the portfolio, because normally the company sort of sets and so forth, so whether it’s like a long term asset that you would like to keep?

Rick Rodekohr

Yes. Well, with respect to Geismar if I understood the question. It’s certainly a long term asset that we want to keep, it has been down for several months with the unfortunate incident that we did have. We do have business interruption insurance that is making up for a majority of what we lost that had a 60 day waiting period and a $500 million cap and so I think in the guidance that we put out between the business interruption insurance and the property loss that we will hit that cap. And as we get into the month of June we'll probably exceed that cap a little bit that BI insurance has certainly help support a lot of the lost cash flows that we've seen over the several months that it’s been down.

It’s an asset that we very much like and we intend to keep in our portfolio and to that point we've also talked about an expansion where we would have Geismar2 which would be another facility. Again Geismar is a facility we like. We have an expansion that is underway also with the start-up that will go in service in June, and so an expanded plant in one that we think is very attractive for what we have.

The other question was around the project that we pulled which -- around Bluegrass. We continue to believe that the north-east market is going to need some project to get the NGLs to the Gulf coast. We believe Bluegrass is the right project, but again it is like I was saying earlier, we really need some commitments from the market side and the producer side to make these projects go. We’re not going to invest that kind of capital on a spec project and so if the market develops and we continue to be out there, pushing the market and seeing what we can do, we’re certainly not investing anymore capital into Bluegrass. But again we think there needs to be a project. We like it to be Bluegrass, but moreover I think we just would like to see a project get built to help our assets in the north-east. So again we're continuing to pursue customers, but we’re not really spending any capital on Bluegrass, but think ultimately there needs to be a solution that rail is just not going to be enough and there is not enough local demand to take care of all of the NGLs that are coming out of that area. John?

Unidentified Analyst

The question is, as far as you’re seeing a lot of these pipeline reversal projects, so I am curious, kind of on a cost per inch mile, what’s new build cost to take gas from the north-east to Gulf Coast. And then if it's a reversal, what is typically cost saved, kind of per inch mile, from gas to the Gulf Coast. Just kind of ball park; I mean, there is a lot, I mean is there any kind of range as we can…

Rick Rodekohr

Unfortunately I don't have ranges, I can give you. I can tell you that the new builds are very-very expensive. I mean you just look at Atlantic Sunrise for example, over $2 billion of a project and that’s why the repurposing of some of these pipelines and the reversing of the flows are really kind of critical to some of these pipelines to get the tariff rate to where the market needs them to be.

And so if you had to do a total new build from the north-east all the way down to the Gulf coast, I don’t have any idea what that would cost. But I got a feeling it could be market prohibitive. So the repurposing and reversing the flow are really key to some of these projects. And so that’s why it made a good partnership with [Hudson] and with Boardwalk to use some of their existing pipeline, but again the market just hasn’t developed and we’re not willing to go out and commit that kind of capital without having long-term support where we can demonstrate attractive rates of return. So until that market develops, then we won't be there, but when we are there it’s almost -- it’s a huge benefit to have a pipe that’s already in the ground that you can reverse the flows on.

Unidentified Analyst

Rick, you briefly mentioned Geismar2, could you just maybe talk a little bit about where you are in the process with that and just the differences in terms of like the contracts and the model for Geismar2, and maybe Geismar1 could eventually sort of, earliest part of it, head towards that model?

Rick Rodekohr

Yes, Geismar2 is certainly in the early stages, but what we would like to see is kind of a fee-based product if you will, and probably have partners that would come into Geismar2. So again, it’s the ways off, but it’s in that category of the $25 billion where I said where it's a potential project, one that we believe that there is a market for it and that we’ve got kind of the right location and the right model setup and so we're out, just trying to see what the market is for that project and when it can take off. But it would be one that we would like to do on a kind of a fee-based structure as opposed to the commodity.

Unidentified Analyst

Going back to Bluegrass for a second; do you think the project is just kind of early at this point? Would you consider rather than NGLs, something like dry gas and still using Texas gas, or is it NGLs or nothing?

Rick Rodekohr

Well I think for Bluegrass, it’s probably at this point it would be NGLs or nothing in, and obviously I think the market's selling if its early at this point they weren’t willing to step up right now and commit to it. You might find that it's like the example we have with Atlantic Access and Atlantic Sunrise, that at some point the market will be there and they will be willing to step up and do it. But I think there is enough pipeline capacity right now and with all of the expansions being announced that should take care of some of the dry gas for a while. So really Bluegrass was kind of NGLs or nothing to bring all of that supply to the Gulf coast. But a little early, but we'll see if the market develops.

Unidentified Analyst

And, is Boardwalk kind of tied up in terms of Texas gas at this point or, is this still a project that they are committed to?

Rick Rodekohr

I don’t want to speak for Boardwalk, I think it’s a project that both companies would like to see happen but certainly Texas gas can go and Boardwalk can go out with an open season and see what kind of demand there is for their pipeline. So I think they are free to do what they need to do. But at the same time we’re still pursuing to see if a market will develop for the Bluegrass pipeline.

Unidentified Analyst

Great. Thanks.

Unidentified Analyst

We have time for one more question. At the Analyst Day you guys recently had, you talked about moving WMB to a pure-play GP overtime, could you just may be walk through the process that needs to pan out for that to happen I guess some of the challenges or some of the things we still need to work out to get there?

Rick Rodekohr

Well, we certainly -- we currently have projects that are being developed at the WMB level, some of our Canadian development projects are there, as well as some of our pipelines in Texas and Louisiana area. So we would have those projects if we want to move to a pure-play GP, we would have to drop those projects down into WPZ. And I think the timing of that is just really dependent upon the market environment looking at what WPZ has, how they can finance those, when the best to finance those projects would be and that will really dictate kind of the timing as we go forward. So believe that there is value in moving WMB from where we are today to a pure-play GP where we can take all of the cash that we receive from the LP and the IDRs both from WPZ and from ACMP, bundle those together and pass that all to the shareholders WMB. And we’re certainly going to start moving in that direction, but the timing will be dictated by the market and when we think that we could best finance those projects when those projects are best to be dropped down whether it’s in development or after they are already in service flow and cash flows we just need to look at all of that and map out a timeline.

Unidentified Analyst

Okay. Great. Thanks very much. So we'll move to a break now. I think we'll back at about 10:15 with ONEOK.

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