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Williams Partners, L.P. (NYSE:WPZ)

Q3 2010 Earnings Call

October 28, 2010 11:00 am ET

Executives

Sharna Reingold - IR

Steve Malcolm - Chairman & CEO

Alan Armstrong - SVP of Midstream & President, Midstream Business Unit

Analysts

Stephen Maresca - Morgan Stanley

Darren Horowitz - Raymond James

Yves Siegel - Credit Suisse

Gabe Moreen - Bank of America Merrill Lynch

Ted Durbin - Goldman Sachs

Jet Theriac - George Weiss Associates

John Tysseland - Citigroup

Sharon Lui - Wells Fargo

Craig Shere - Tuohy Brothers Investment Research

Operator

Good day everyone and welcome to the Williams Partners LP Third Quarter 2010 Earnings Release Conference Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I’d like to turn the call over to Ms. Sharna Reingold, Director of Investor Relations. Please go ahead.

Sharna Reingold

Thank you, David and good morning everyone. Welcome to the Williams Partners third quarter 2010 earnings call. Thank you for your interest in the company. We do have a few slides to go over in our presentation this morning.

Steve Malcolm will be going through those in just a minute. After Steve’s remark, we will open the line for questions, and be aware that Alan Armstrong, Don Chappel and Phil Wright also here and available for questions.

Before I turn it over to Steve for his remarks, please note that all the slides are available in a PDF format on our website, williamslp.com. Please read slides two within the presentation. They are forward-looking statements about the future expectations and operations that are subject to the various risks and uncertainties, which are disclosed on those slides.

Also included in this presentation today are various non-GAAP numbers that have been reconciled back to measures included in Generally Accepted Accounting Principles. Those reconciliation schedules and related information are included in the slides available on our website, williamslp.com. With that, I’ll turn it over to Steve.

Steve Malcolm

Thank you, Sharna, and welcome to the call, and thanks for your continuing interest in our company. Starting on slide four, the financial results, which are very good. Third quarter net income is 226 million or $0.63 per common unit. Distributable cash flow for the third quarter is 240 million. 2010 year-to-date distributable cash flow of 972 versus prior year of 908, so we’re up 7% year-to-date. Year-to-date and full year 2010, DCF and coverage ratios remained strong, and 2010 year-to-date adjusted segment profit of over $1 billion versus 2009 of 880 yields a 22% higher number for 2010. So, good-good financial results.

The highlights are shown on page five, some of the operating highlights, transaction highlights. So, we did agree up to buy the Piceance gathering and processing from Williams. I have a slide later on that one, which I will save any further comments about that. We’re making progress on our Marcellus Shale opportunities, and again, there’s another slide later, which I’ll use to talk in more detail about that.

We closed and financed the Overland Pass pipeline transaction. There was strong demand for WPZ’s share during that offering. We completed the restructuring transaction with the PZMZ merger. We brought the new Echo Springs TXP4 into full operation at the end of the quarter.

I think it’s good to note that we placed that into service two months ahead of schedule and significantly under budget. And that train adds approximately 350 million a day of natural gas processing and 30,000 barrels per day of natural gas liquids production, roughly doubling the existing capacity on both cases.

We’re preparing for the November start-up of Sundance Trail expansion on northwest pipeline. We’re pleased to see the end of Gulf of Mexico drilling moratorium, and obviously people are still, producers are still wondering how that this is going to all play out, but we still see a lot of opportunities in the Gulf, and see this as a first step to getting those activities back on stream. Increased the distribution by $0.015 and we did announce the leadership succession where Alan Armstrong will be taking over as Chairman and CEO.

Slide six please. This simply gives the commodity price assumption, ranges and mid points for Henry Hub and Rockies gas, crude oil and NGL margins in the NGL – the very important NGL to crude oil relationship. And really these numbers, these assumptions are unchanged from those that we talked about at the Barclays conference.

Slide seven. We expect strong growth during the guidance period as is shown on this graph with the distribution coverage ratio increasing adjusted segment profit moving in the right direction. DCF, and you see CapEx in the lower right hand corner, and of course 2010 capital is up because of the most recent bar gas or Piceance acquisition.

Slide eight. We’re expected to invest over $2 billion in growth in the 2010 through 2012 period. This breakout shows capital dollars for maintenance of facilities for maintenance of volumes and then growth projects, and again the 2010 blue bar is increased by $782 million for the bar gas transaction.

Slide nine, our ever familiar pie charts, and we’ve had great success in moving projects from the left to right. We’ve had great success in capturing more and more projects over time. And as you can see, as you look at these graphs, at these pie charts, we see significant opportunity onshore out west, in the midcontinent Marcellus, and still a lot of activity in the Gulf, a lot of ongoing negotiations and ongoing opportunities.

Slide 10, I told you I would get back to Marcellus. This is probably our most exciting opportunity, really lot of deal flow. We’ve talked about all of the confidentiality agreements that we have in place. We’re rapidly expanding the Laurel Mountain midstream gathering system. Projects there will ultimately provide 1.5 Bcf a day of gathering capacity, 1,400 miles of gathering lines, including 400 new miles of large diameter pipe.

Construction has begin on our Shamrock compressor station, which you can see there. And that’s the green dot there. But we expect that ultimately that compressor station to be the largest central delivery point out of the Laurel Mountain system.

Laurel Mountain will also benefit from a JV between its anchor customers and a third-party drilling partner. And we expect it will provide the funding to accelerate the customers’ drilling plans and grow their lease hold position in the Marcellus.

Spring, we also have the Springville gathering system, which is shown there on the map. We’ve gotten all of the right-of-way necessary to proceed, and expect construction to begin in the first quarter of 2011. And we have to better pursue future opportunities, we upped the project size of that mainline from 20 inches to 24 inches. So, a lot of activities in the Marcellus.

Page 11 shows the $1.3 billion inventory of WPZ gas pipeline growth projects. We’ve talked about the fact that we view our strategy kind of as a base hit approach. We’re not taking excessive risks, and most of the growth has been and will be from market pull projects within our existing footprint as opposed to the producer push types, which are dependent on a given supply base, and it may be somewhat more risky.

We think there’s significant opportunity for expansion to serve power generation, particularly in the southeastern part of the US, and as you well know, Williams Gas Pipeline franchise is a major segment of the nation’s energy infrastructure. On any given day, about 12% of the gas is consumed in the US flows through our pipes.

Page 12, talks a little about the drop down or the acquisition of Piceance assets, G&P assets from Williams, 150 miles of large diameter pipe connecting to 3,300 wells, six aiming amine facilities, 160,000 horsepower of compression, 1.2 bcf a day of dew-point processing capacity, clear synergies with some of the existing WPZ assets. A very attractive financial profile, good stuff here, fee based business, $105 million of segment profit in DD&A in 2011, immediately accretive to DCF. We have a life of lease dedication from Williams E&P and expect closing to occur in November of 2010.

Slide 13 please. Guidance is up as a result of NGL margins and the Piceance acquisition and you can see the numbers there distributable cash flow moving in the right direction, you can see our new guidance is improved. Cash distribution coverage ratio moving in the right direction from one point two times in 2010 to 1.5 times in 2012 and as well slight upward adjustments in terms of segment profit and DD&A in ‘10, ‘11 and ‘12.

So, finally the summary on slide 14. We’re increasing distributions. We have growing strength and expected cash distribution coverage as I mentioned earlier. We expect that our future growth will be balanced between midstream and gas pipes. We’re delivering strong fee-based growth, but retaining some commodity upside. A lot of activity, a lot of deal flow, and we clearly are building scale, and DCF capacity through these large scale acquisitions, and I’m referring to things like Overland Pass and the most recent Williams Piceance gathering and processing acquisition. So with that we will be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

And we will take our first question from Stephen Maresca with Morgan Stanley.

Stephen Maresca - Morgan Stanley

Hey, good morning, again, everybody. A couple questions on the dropdown. The revenue on the midstream, is it 100% from Williams’ E&P business?

Alan Armstrong

There are some relatively small third-party producers that E&P historically has provided service to that will be in there. But I can tell you, on a go forward basis, there is quite a bit of opportunity, and we’ve been successful recently in reaching agreement with third-party producers.

Certainly E&P’s focus was making sure that their gas and their assets were optimized to move their own production, and we’ll certainly be looking to – and like I said, we’ve already got some deals that are very near closure for some additional third parties in the area. So, I think, we can add a lot of value even above and beyond just the movement or transfer the asset, I think there is a lot of true third party value to be added by gathering additional volumes out there.

Stephen Maresca - Morgan Stanley

Okay. And is there any debt on the assets coming down?

Alan Armstrong

No.

Stephen Maresca - Morgan Stanley

Okay. Just in the third quarter, so there was I guess a little bit of decline in DCF from the 298 to 240. Is that mostly from NGL equity bonds being down, because I didn’t think you had that much Gulf exposure, but you cited that a little bit in your release.

Alan Armstrong

Yes, the Gulf exposure there was not driven by the moratorium on those liquids volumes; it was due to some outages that Exxon had on their upstream gathering and treating plans. In addition to that we had at our Perdido Norte tie in, which ties into Marcum, we had some outages associated with that tie in there that were prolonged. So, that’s really the outages in the Gulf, very little to do with drilling moratorium.

Stephen Maresca - Morgan Stanley

Okay. And then, final question just on Overland. Any update or color on expansion opportunities? I think you said it was running full right now if I remember reading correctly. And that’s it. Thanks.

Alan Armstrong

Yes, on Overland Pass, really our challenge there, between us and ONEOK there, is going to be to make sure that we optimize the remaining capacity, which we tag at about a little over a 100,000 barrels a day of incremental capacity that can be added to the system, and our challenge is going to be to make sure that we get the very best value out of that. There is certainly plenty of demand for that space. And we’ll be looking to make sure we optimize that.

Operator

And next we have Darren Horowitz with Raymond James.

Darren Horowitz - Raymond James

Hey, good morning, guys. On behalf of Raymond James, we want to extend our congratulations to you, Steve, and also Alan, on your respective announcements.

Steve Malcolm

Thank you.

Darren Horowitz - Raymond James

Alan, first question for you. With ethane demand running about 960,000 barrels a day, I’m trying to get a feel for the timing and magnitude of any potential light-end cracker conversions or additions that you see.

I think, Steve, you mentioned on the WMB call that you’re expanding Geismar capacity and we’ve also heard I think of a cracker modification in Longview. But what else do you see in the marketplace today?

Alan Armstrong

I think our vantage point at Geismar is helpful, and the – similar to what you would hear in the refining space, I would call this, we’re seeing creep in capacity, because the margins are high, very high right now in cracking light-end product into ethylene, because on a worldwide basis ethylene continues to be very well related to naphtha, and of course naphtha is extremely well co-related to crude oil.

And so the margins on that business today remain very strong – on a worldwide basis, well over 50% of the ethylene produce is usually naphtha, and so that really provides us a lot of opportunity on the export side. So, to answer your question, I think you’ll continue to see rational investments in that space.

As people look to maximize both conversion – there still remains some conversion from things that were cracking heavier product, but I suspect we’re starting to get into – the majority of that’s probably been converted, but there is very nice incremental investments to be made just like in our Geismar facility, a lot of that capacity out there is very old and as a result of that there is a lot of debottlenecking opportunities.

Darren Horowitz - Raymond James

Yes. If you were just to try and handicap how much conversion you think is still yet to take place, would you say it’s maybe 75,000 to 100,000 barrels a day of modifications that are being evaluated or maybe a little bit less?

Alan Armstrong

I would direct you probably to looking at the CMAI. We certainly pay a lot of attention to their thoughts on that and they certainly do very detailed analysis and keep good track of that. And they are calling for that to exceed the million barrel mark. So I think that’s pretty good read from our vantage point. We tend to agree. But, I would tell that as rapidly as that’s expanding, and as quickly as you reach the 960 mark, we may blow through that number.

Darren Horowitz - Raymond James

Right, okay. And then, finally, as it relates to your 2010 guidance, you’re tightening the upper threshold for your average NGL margins. How do you look at hedging your equity NGL volumes not only into the end of this year, but also into early 2011?

Alan Armstrong

I think today, given the demand and the impairment or delays that it’s going to take to bring on the infrastructure to continue to meet that demand and the market is probably not got that priced into it. And we did some pretty significant hedges this year on all of our products, and they in the fourth quarter had some hedges here on ethane.

But I would tell you as you get beyond the first quarter, the market is just so backwardated on ethane and we don’t really see the fundamentals that would drive that, because it’s going to be a while before a lot of its infrastructure is built out that bring supply there.

Darren Horowitz - Raymond James

Okay. Has there been any incremental opportunity for you to kind of capitalize on that arb between Conway and Belvieu?

Alan Armstrong

Well, as we’re positioned there, our product out of the Rockies gets – we get Belvieu pricing for that business today. And so that’s the way we capture that. We have the option on the heavier products. We have the option of taking it at Conway or Belvieu, but generally Belvieu has been the higher price there.

So we’re not in a position from a transportation standpoint to take advantage of that arb, but we certainly are positioned to – because we’ve got capacity in effect to take that product that it’s only other alternative is to go down the Maple System out of Rockies and we’re capable of taking that into Belvieu. We certainly have been taking advantage of that capacity we have available on Overland Pass today.

Operator

And next we have Yves Siegel with Credit Suisse.

Yves Siegel - Credit Suisse

Thanks. Good morning, again. Hey, Alan, could you just elaborate just on that Conway question? On slide nine, it looks like you have 20% of the CapEx in Conway. Could you just discuss how you’re spending the money there?

Alan Armstrong

Well, that’s actually Conway-Overland Pass combined there. So, a lot of that is for expansion of Overland Pass. But, in addition to that, I would tell you that even though it’s not as larger percentage of that, Conway there is tremendous demand for NGL storage. We turned down quite a bit of business this year on propane side, and we were completely filled on the EP side.

And really what’s driving that, Yves is the product coming in from Overland Pass provides a new source of supply into that area, and so if there is any constraints between Conway and Belvieu getting that product that’s frac’d at Bushton down, it tends to pile up there. And so it’s driving a lot of demand for storage there.

And in addition to that there’s a rather prolonged outage at the – up in the Illinois and Indiana area with the Clinton Morrison facilities and so that put a lot of demand. So bottom line, we’ve got continued increases in demand for our storage at Conway, and we will be investing some to meet that.

Yves Siegel - Credit Suisse

And could you just give us some guidance in terms of how much storage you have there and how much you can expand it by, how meaningful could that be?

Alan Armstrong

Today, in terms of how much we might expand, I would say the projects we are looking for will be about 10% to 15% expansion of our existing capacity there.

Yves Siegel - Credit Suisse

Do you think that there’s a need in the marketplace for another pipeline between Conway and Mont Belvieu?

Alan Armstrong

Well, I think if we continue to see that spread exist, and this is a very efficient market on the NGL side largely because of the availability of capital. And so the market tends to find a way to arb that out with the capital that’s available. And in addition, there is quite a bit of infrastructure in that fairway that maybe in other service in between Belvieu and Conway, and so it’s a pretty intelligent sector in terms of being able to work out those arbs and a lot of capital chasing those opportunities. So, the answer to your question is yes, I think if that basis continues that the market will find a way to capture.

Yves Siegel - Credit Suisse

And then, if I could just move back to the drop down, could you just tell us what the maintenance CapEx is on those assets?

Alan Armstrong

Yes. On the immediate term it’s about 10 million.

Yves Siegel - Credit Suisse

Okay. And then, did you have to restructure any of the contracts with Williams E&P when you did the drop down?

Alan Armstrong

Yes. There was not really comprehensive definitive agreements in place, so the answer is yes.

Yves Siegel - Credit Suisse

So even on the processing side, all of that is just fee based?

Alan Armstrong

Well, the Willow Creek agreement, which was in existence, there wasn’t any amendment to the Willow Creek agreement. And to remind you that one is partially fee based and partially percent of liquids with BNP maintaining the key progress there. On the processing agreement for using the dew point treating facility that is primarily fee based.

There is a little bit percent of liquids exposure that we have on that just to – or off the margin just to make sure that we are incented to make the right decisions in terms of recoveries there, but it’s very small. I think it’s 1% of the total revenue streams there.

Operator

And next we have Gabe Moreen with Bank of America Merrill Lynch.

Gabe Moreen - Bank of America Merrill Lynch

Good morning, everyone. A question I guess on the guidance on the midstream side and sort of the slide on the capital that’s in guidance, that’s not in guidance, it’s under negotiation. On the Gulf coast G&P sliver there, I’m just curious now on how much of that is related to Eagleford opportunities, let’s say versus offshore opportunities.

And then, also, I guess maybe if you can comment about Chevron’s sanctioning of Malo, and I think its (inaudible) tact and going forward with that development, and where do you see Williams potentially playing a role in helping them get production to market?

Alan Armstrong

Okay. First on the question on the Gulf Coast, in terms of what’s in guidance and under negotiation and potential of onshore versus offshore, probably about 10% to 15% of that is onshore related and that’s mostly pursuing the Eagle Ford of that Gulf Coast portion. And the balance of that is in pursuit of some large deepwater infrastructure in GulfStar.

I’m sorry if you’d repeat this last part of your question, we were breaking up a little.

Gabe Moreen - Bank of America Merrill Lynch

Sorry, Alan. The Chevron projects that just got sanctioned, I know that that’s sort of in the vicinity of discovery. I’m wondering if Williams is potentially going to participate in some way.

Alan Armstrong

Yes. If you’re talking about Jack and St. Malo – are you talking about those?

Gabe Moreen - Bank of America Merrill Lynch

Yes.

Alan Armstrong

No. We are not involved in those particular projects on discovery. However, there are some other prospects out to the Keathley Canyon area that we’re intending to utilize our remaining capacity for there.

Gabe Moreen - Bank of America Merrill Lynch

And if I could follow up on the earlier hedging comments, Alan, about the ethane in the backwardation. Is it similar for the other products on the heavier side of the barrel? And I guess you’re also seeing the same discount that’s making you reluctant to hedge on the heavier than ethane side?

Alan Armstrong

It’s certainly lighter as you get into those heavier products even though the markets are very thin. In other words, if you went out and looked at the real, the bid-ask spread there, there’s not as much backwardation, but for us to put on a meaningful hedges, we tend to over supply the market pretty quickly. There’s a lot more sellers in that market mostly because of the desire amongst the MLPs to reduce that risk. There’s a lot more sellers out there than there are buyers in that market.

And so it’s pretty thin still, and for large companies like us, it has pretty significant volumes. When you go into that market, you tend to see it move away from you pretty quickly. So, we’ll continue to pick up optimistically in those markets, but we don’t really see any reason frankly why those NGLs should be traded – the heavier NGLs should be trading off of crude oil as much as they are right now, and again as soon as we come in to it, they tend to move away from us. So, we have to be cautious about how leg into those positions.

Operator

And next we’ll go to Ted Durbin with Goldman Sachs.

Ted Durbin - Goldman Sachs

Thanks. I just wanted to ask a little bit about your processing investment on Parachute. What kind of returns are you targeting there? How do you think about the range of returns given various commodity prices in your guidance? Maybe talk about third party volumes that you might see there.

Alan Armstrong

The return pick there would tell you that the broader market is what we would look to, and I think its very dependant, but things in the range of 12% to 15% on very solid fee based business, and of course as you take risk on volume and other matters, it starts to move beyond that obviously. So, I think that’s kind of our expectation of where that market is right now.

And in terms of third parties in the area, a lot of great opportunities to serve third parties there and again, once you’ve kind of got the scale that we have in that basin, you can add a lot of value to those third party customers by letting them enjoy some of the benefits or some of the economies of scale that we enjoy out there. So, they are happy, we are happy.

We still will make a very nice return, and they are going to get their service provided a lot lower than they could otherwise do themselves. So, really excited about the Piceance in terms of taking those assets and lining them up to serve third parties in the area.

Ted Durbin - Goldman Sachs

Okay, thanks. Can you just talk a little bit about, you had the weakness in the equity NGL barrels. What’s your expectation of sort of the ramp up? Has that kind of snapped back quickly here in the fourth quarter or is it more gradual over time?

Alan Armstrong

No, it’s fairly immediate. Actually most of those items were – well, all of those items that were caused there and I think in our data book they’re listed all behind us. And so everything is up and spinning. And we are looking pretty strong right now in terms of our current volumes.

Ted Durbin - Goldman Sachs

Okay, great. And then, if I could just switch over to the Keystone connector. So what are you seeing in terms of the ramp up in the gas and the liquids volumes? Is there a sense of producer urgency right now to deal with some of the ethane issues? Could you just talk about kind of the interest you’re seeing from the producers?

Alan Armstrong

As I characterized earlier this morning, the chicken-egg problems are still pretty daunting just now in the eyes of the producers. While on the one hand they have a sense of urgency around getting their liquids dealt with, they have a great reticence to sign a precedent agreement that’s very long term and large that will be necessary to support infrastructure in the space.

Having said all that though, we are still optimistic about Keystone connector and the ability to uniquely deal with liquids out there in a way that takes great advantage of our geography, and one of the things that we’re looking at there, as I may have mentioned in the previous call was that there is some dry gas in large quantities along the route that would be used to blend up the volumes, and it gives you an opportunity therefore sort of in the intermediate and long-term to step into longer range solutions. So yes, the interest is still high.

Operator

And next we’ll go to Jet Theriac with George Weiss Associates.

Jet Theriac - George Weiss Associates

Hi, guys. In your high guidance scenario you’re assuming 580 Rockies gas, $97 crude, and 55% NGL to crude. One of your bigger competitors is assuming a much lower gas price, $4 or so, and $100 crude, then 60% correlation. I’m just wondering if you’ve contemplated, if you’ve modeled what your sensitivities would be to a wider frac spread like that.

Alan Armstrong

Well, we don’t have that number available for you here as we sit here today. I would certainly not try to argue with anybody on how wide the range on future prices can be given, given history. And I do believe that the historical relationships have some room to improve. So, I don’t disagree that we can get back to that kind of number. So, that’s their opinion and certainly wouldn’t argue that things could reach that level.

Jet Theriac - George Weiss Associates

Okay. Is it safe to say that you would benefit – that PZ would benefit in that scenario, in a lower gas price, and the same oil forecast scenario?

Alan Armstrong

Absolutely, and if you look on slide on 150, amazing that goes that high, but if you look on 150 in the data book, there is a sensitivity analysis that will give you some help on that.

Jet Theriac - George Weiss Associates

Okay, great. Thank you. And then, if I could, how long does your option to elect Belvieu pricing on Overland Pass last?

Alan Armstrong

It’s very long term. We haven’t disclosed the exact term, but it’s very long term.

Operator

And next we’ll go to John Tysseland with Citigroup.

John Tysseland - Citigroup

Hi, guys. Good morning. A quick question on the Piceance acquisition. Is the fee based profile of that asset based on inlet volumes or is that based on tailgate liquids production? In other words, if ethane rejection makes more sense economically, should we expect to see slightly lower cash flows?

Alan Armstrong

No, it’s based on gathered volumes.

John Tysseland - Citigroup

Okay. On the Keystone project, Williams has I guess good opportunities on both the wet gas area and the dry gas area. And I was wondering if you find it difficult for third party commitments on the Keystone project. Is that something that Williams would look at producing both sides of that line together without third party commitments just for their own production, or is that something where you would really require a third party to come in and sign a long term contract before Keystone really goes forward?

Alan Armstrong

Well certainly, we are working hand in glove within FERC guidelines and tolerances with our E&P Company just as we would with any other customer to serve their needs with this asset. And we’ll look at that. I don’t believe we have enough volume on our own hook just yet to warrant proceeding with Keystone by ourselves.

John Tysseland - Citigroup

And then how do you see economically netback to the producer of Keystone as an option versus kind of some of these ethane bullet pipelines that we’ve seen several announcements on or even some of the Y-grade pipelines? Economically what do you think makes more sense and how competitive do you think Keystone is?

Alan Armstrong

Well, clearly from our perspective, I think our project makes more sense or we – and I don’t mean to say this in a brusk way, we wouldn’t be pursuing it. It is our favorite project. And we do think it’s a superior economic decision, but much will turn on the final negotiations that are able to meet market and our investment profile needs. But a long term “bullet” line to the Gulf Coast is a very long putt. And I think the fact that it’s been very difficult to see one emerge that has concrete plans to proceed is evidence of that fact.

Operator

And next we will go to Sharon Lui with Wells Fargo.

Sharon Lui - Wells Fargo

Hi. Good morning. This question relates to the dropdown assets. Just wondering if you could give us a sense of the utilization rates for some of the plants.

Alan Armstrong

First of all, the Willow Creek facility, which is an existing asset that was in WPZ, that plant is running loaded every day, fully loaded. The Parachute plants and the various dew point facilities to the South have both amine treating today and they have dew point treating facilities. And so on the amine side that’s running fairly loaded every day, and on the dew point processing, there’s probably available capacity to extract additional liquids because we’ve got Willow Creek. So, saying it another way, between those two assets, we can balance the ability to provide processing services to producers, and it’s just a matter of how higher recoveries we can have out of it.

Sharon Lui - Wells Fargo

Okay. And I guess in terms of additional dropdown opportunities, are there other assets at WMB at this point?

Alan Armstrong

There’s some remaining interest in Gulf Stream that exists in the gas pipes group, and beyond that we have various small assets embedded in that serve our olefins business that are – and NGL service and therefore provide qualified income, but relatively minor in terms of what we have today.

Sharon Lui - Wells Fargo

Okay. And I guess my last question. Just if you could provide I guess an outlook on Marcellus activity given the regulatory environment and proposed taxation.

Alan Armstrong

We’re not seeing any retardation whatsoever either in the northeast Pennsylvania area in the Susquehanna County, which our Springville lateral serves. And in fact, as we announced, we’ve chosen to size, go from the 20 inch to 24 inch line based on demand from customers on that pipe. And then additionally, in the Atlas JV, the Laurel Mountain JV, very robust drilling plans, and we’re doing our dead level best to keep up with Atlas’s drillings there on the infrastructure side.

So, really don’t see any backing off today, and I think what producers are looking for out there is some certainty in the rules and I think that’s the negotiation that’s going on right now between the state and producers is the Advil Orem tax or, sorry, the taxes on the producing properties in exchange for some rules out there that they can depend on and know what the permitting is going to look like going forward. And I think that’s going to get worked out, but I certainly don’t see anybody backing off right now.

Sharon Lui - Wells Fargo

Okay. And have you seen I guess a change in terms of regulations on construction on the midstream side in the Marcellus?

Alan Armstrong

Yes. Well there is a lot of permitting issues, and there is a lot of uncertainty in terms of where jurisdiction lies on certain permitting activity, but we have really been hitting that area hard, and we have been working very cooperatively with all the parties to make sure that we are being transparent with our plans, and that we’re helping to expedite the permitting process as much as possible.

And while we had quite a learning curve, I would tell you the first half of this year we’ve made tremendous progress here in the third quarter in getting a lot of our permitting issues resolved, particularly in the lower mountain area. So, we’re starting to figure out how to work with the various regulators in a constructive and collaborative manner, and I think if you were to ask those regulators today, we have a very positive reputation in terms of how we’re dealing with them up there.

Operator

And next we have Craig Shere with Tuohy Brothers Investment Research.

Craig Shere - Tuohy Brothers Investment Research

Thanks. Alan, I’ve got kind of a long term cost of capital question for you. But first, let me just say congratulations on the well deserved new roles.

Alan Armstrong

Thank you.

Craig Shere - Tuohy Brothers Investment Research

The latest dropdown from the C Corp parent seems to be pretty accretive. I mean, it’s a very attractive, for a fee-based business multiple, and then there’s some expansion opportunities. And perhaps one of the drivers for that, as previously mentioned, on the WMB call might be the synergistic ownership structures.

But, I guess this feeds into my long term question here. How should we think in terms of WPZ’s competitiveness in basically looking to acquire a third party assets, given its cost of capital with the 50% GP IDRs. And over time, from your perspective, would you like to see those IDRs monetize in a way that they go away and make you a little more competitive for third party assets with some of the MLPs out there?

Alan Armstrong

Well, we certainly have the flexibility to flex that IDRs, and as we did prior to the big bank transaction last year, we waived those IDRs and relax those during periods of lower – or what we thought was going to be lower margins. I should say, we actually in the end didn’t need to have done that.

So, I think we certainly demonstrated that we are going flexible – sorry, that Williams as the GP is going to be flexible as required to make sure that we’ve got healthy growth to this business. So I’m not really daunted by that issues at all. I think we’ve got the commitments since we completely control that GP at the Williams level. We’ve got the ability to flex that when we think it’s important strategically to grow the business.

Craig Shere - Tuohy Brothers Investment Research

Do you feel like there’s enough organically on your plate that you have more than you can deal with at the moment, or would you like to see if it was an issue, a little more flexibility in terms of cost of capital looking at third party assets?

Alan Armstrong

Right now, given the alternatives that we have on the development side, we don’t have any problem continuing to build out in a very accretive manner, and plenty of opportunity right now and very excited about that.

So, we want to really go after growth in a big way with WPZ, and to the degree that acquisition opportunities present themselves that make sense. And the GP would be involved in that. We’re certainly positioned to do that, but right now, I can tell you, we have a pretty strong are trajectory just with the business as we know it today. But nevertheless, we intend to be making Williams what it can be in the long run in terms of being the player in this industry.

Operator

That’s all the time we have for questions today. And I’ll now turn the call back Steve Malcolm for any additional comments or closing statements.

Steve Malcolm

Well, again thank you for your interest. The prospects for WPZ are very, very bright. And the team looks forward to talking with you next time. Bye.

Operator

And that does conclude today’s conference and we thank you for participating.

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