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Williams Partners L.P. (NYSE:WPZ)

Q2 2014 Earnings Conference Call

July 31, 2014 09:30 AM ET

Executives

John Porter – Investor Relations

Alan S. Armstrong – Chairman and Chief Executive Officer

Donald R. Chappel – Chief Financial Officer

James E. Scheel – Senior Vice President - Northeast G&P

Analysts

Christine Cho – Barclays

Shneur Gershuni – UBS

Brian Belski – Morgan Stanley

Abhi Rajendran – Credit Suisse

Theodore Durbin – Goldman Sachs, Goldman, Sachs & Co.

Carl Kirst – BMO Capital

Sharon Lui – Wells Fargo

Christopher Sighinolfi – Jefferies

Bradley Olsen – TPH

Operator

Good day everyone and welcome to the Williams and Williams Partners Second Quarter Earning Release 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 sir.

John Porter

Thank you, Michelle. 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 import items on our web sites: williams.com and williamslp.com. These items include yesterday’s press releases with related schedules and accompanying analyst packages, the slide deck that our President and CEO, Alan Armstrong will speak to you momentarily and an update to our data books, which contained 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, leads our Northeastern G&P operating area; Allison Bridges, leads our Western operating area; Rory Miller, leads the Atlantic Gulf area; and John Dearborn, leads 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 reconciled to Generally Accepted Accounting Principles. Those reconciliation schedules appear at the back of the presentation materials.

With that, I’ll turn it over to Alan Armstrong.

Alan Armstrong

Great, good morning John and good morning everyone. Thanks for joining us. Certainly, the second quarter was very exciting for Williams. As we see the opportunity make an important acquisition that moved us closer to filling our vision of being the premier provider of reliable large scale infrastructure that really has become very clear to everybody that that this kind of large scale infrastructure is going to be absolutely critical, so allowing North America to take advantage of its vast natural gas resources.

We also rapidly accelerated our earlier stated plan for establishing WMB as a pure play GMP holdco and continue to lead the space in dividend growth by very wide margin.

At WPZ we had another strong quarter with operational performance being in line with our expectations and driving a 30% increase in distributable cash flow at WPZ.

We also enjoyed great progress in execution on a number of very important projects in the second quarter a tremendous amount of work going on within the organization on this front, and just to name a few and you really only hear about the very largest projects, but a tremendous amount of effort going on across the organization, but just to name a few Gulfstar, Keathley Canyon the condensate stabilizer at Oak Grove in the Ohio Valley Midstream area.

The new Ethane in line which is being completed in the OVM area, and we also started construction finally on the Rockaway Beach lateral after a very long and grown our permitting process. So, for those of you there in New York, you look out and see some of that work going on and in fact on the front of our slide you see some picture there. So, that’s going to allow us to bring that project in on schedule as well. So a lot of very big projects that we made tremendous progress on and remain on schedule on those some of those major projects.

We also saw continued strong demand for our services with two significant new market pull projects on Transco that were fully contracted, and I think its becoming pretty evident that Transco discontinues to line up these hit, and I will tell you that’s not slowing down in terms of continued business development opportunities just keep coming at us in that business line.

The Marcellus area volumes continued their rapid growth as well with a 31% increase in gathered volumes as compared to last year’s 2Q volumes, and we are on track once again to lead the industry on volume growth in the Marcellus this year.

Our Geismar E&C efforts were in line with plan and our rebuild was completed last week. Our final efforts on the expansion will be done by the end of next week. So our E&C team, our Engineering & Construction team is wrapping up and moving out as we now are turning that important facility over to our operations team.

Unfortunately and certainly this is something we are all very disappointed around here with, but unfortunately we did find a new concern there at Geismar that it’s going to require an enhancement to our safety systems that we expect to cause about a 6 week to 8 week delay in the first self of that point in Geismar.

As I mentioned this is certainly disappointing to us, but it’s difficult as this is, I will tell you I am proud of the fact that our organization will always put the safety of our people first and this is certainly just our organization following those words with action by having encouraged to pause and do the right thing in terms of making sure that plan is as safe as possible.

So even though this is out of the norm situation here, I know this is such a big issue, I really would like to take you back to the appendix. If you look back on I believe at slide 14 in this deck and we will move there on our webcast, even though it’s out of order here, you’ll see that on slide 14, we showed the incredible progress that’s been made on the expansion and rebuild and the pre-commissioning efforts, which were all but complete and will be complete at the end of the next week in terms of getting all of our systems turned over to operations.

So what does that mean, it basically means just things like our steam systems, all of our auxiliary systems and we break those down into about 62 different systems and as those are mechanically complete, we turn them over to our operations team for them to take control of those facilities.

And so as we were finalizing some of the relief valve study that was required as a result of the event last June 13. We determined and we’re frankly a bit surprised but determined that there was another scenario that we needed to be prepared for in the event of a blow down or in the event of an air at the plant and a malfunction of a plant.

In that assumption that we embedded has required us to go back and study that the press relief system and we determined as we did that that we actually had to make some further modification to the relief valve system again.

Certainly a tough decision to do that, but again I think absolutely the right one when it comes putting a safety ahead of anything else in our business.

So you can see here in July 31, we are started on those – on that relief valve system and modifications, we had a lot of these – the plant already buttoned up and in many cases a lot of the systems were dried out and we’re having to open the system back up now and so that introduces moisture into the system, so when you see that plant dry up has basically backing up on some of the systems that we’re already turned over, and so we think the leads out systems modifications will take about seven weeks and in parallel with that as we start to complete, but now some of those systems will start to dry out and we’ll start tuning up some of the cracking furnishes there and so that the second blue part that you see there called plant dry out and hydrocarbon introduction.

And then finally moving us to a first week in October as we start to get into ethylene production. And so one other thing I’d like to clear you that is certainly our target we think that is a very achievable target, but in terms of our financial projections, just given the number of issues we faced there, we have spread that contingency out and basically we have the range in our financials now just basically starting with that first ethylene production running through the end of the year, and so that’s the range of outcomes that we’ve got built into guidance now.

So we’re building ourselves some additional contingency in there beyond what our targeted date is there. So, that’s our detail and we will be happy to take any questions on that later John Dearborn is with me here to help addressing that as well.

Moving on now to the rest of the presentation and on the Slide 7, some really impressive growth numbers continue to be posted more both WPZ and ACMP and that continues to drive very impressive cash flow growth at Williams, and this especially impressive when you consider that in the second quarter, we only recognized about two months of business interruption coverage there at Geismar.

And so our fee based revenues in the quarter continued the very steady march up into the right and despite a very mild second quarter in terms of any weather on our pipeline systems we still continue to move that up about 7% over 2Q of last year on our fee based revenues, and I think also important we’re well over 80% of our reported net revenues were coming from fee based services in the period.

It also should be understood that much of the big capital investments that we’ve been making here really over, last 2.5 to 3 years don’t start producing cash flow until the third quarter and fourth quarter of the year as Gulfstar, Keathley Canyon and our OVM or High Valley Midstream investments really begin to generate significant cash flow in earnings here in the last half of the year.

And then of course ACMP continues its very steady progress up into the right as this group continue to benefit from this very tight focus on growing the gathering and compression business in the nation’s very best natural gas basins. So very pleased with the way the business is continuing to expand and we’ve got really exciting last half of the year in front of us.

Now looking at some of these important growth drivers that we continue to focus on and report to our investors, one item of significance that added to this list you’ll see there at the bottom is the ACMP acquisition. And in terms of results, pretty impressive work by our finance and legal teams this last second quarter moving from price agreement with GIP all the way to closer within a matter of about five or six weeks. So very impressive work by that team and just continues to shine the light on the kind of talent we have around here in our commitment to continue to drive shareholder value here at Williams.

And so, this list that you have here represents a tremendous amount of effort really across the whole organization and with the exception of Geismar, we are very pleased with the results on the scorecard here as we pass here in first part of the third quarter. Now, there are certainly many E&C projects that are nearly complete and now we are beginning to turn our attention on the next wafer projects that just keep coming, thanks to our very well positioned assets and the competitive advantages that we constantly focus on developing.

I’ll tell you that’s a very natural part of the way we run the business here at Williams and a lot of the major large scale projects that we take on and the challenges that we take on really are in support of making sure we maintain some strong competitive advantages in our business.

So moving on to Slide 9 and looking forward here to this next wafer projects, we see that this list is long and it just keeps coming. The bulk of the large projects in 2015 come from our Atlantic Gulf region that continues to perform very well.

The Atlantic Gulf region continues to execute well and continues to hit its number on a regular basis. And we certainly are – as we look here into these projects in 2015, many of these are really in the major projects or expansions of our Transco and our gas pipeline system in the Atlantic Gulf area.

Projects like Kodiak for instance really aren’t any capital, that’s a tie back to an existing facility and we do have continued what we would call program capital as we continue to build out the Northeast G&P. But a bulk of our major projects have really in the Northeast, a lot of that is getting out of the way this year and we’ve really set ourselves up for a lot of big fundamental growth looking forward beyond 2014 in the Northeast.

The major projects in 2017 really come on late in the year, but our backlog of projects beyond 2017 just keeps building and you really should expect this to continue for sometime as we bring the combined strength of both WPZ and ACMP now, and bring those resources together and the opportunities that that combination brings really is going to be critical as the nation here tries to get up on a 100 Bcf natural gas market. We think Williams and the combined entity is going to be very much at the forefront of reaching that 100 Bcf a day gas market here in the U.S.

So moving to Slide 10 and kind of looking at the big picture of what this new MLP would be, we couldn’t be more excited about not only the size, the scale of this MLP, but the very consistent focus on being the player in the natural gas space and natural gas products and derivatives that are coming out of this big growth in natural gas and we think the combination of Williams and Access just continues to load us towards more and more growth.

Just some important things to note on here that are very impressive in 2015 and expected EBITDA of about $5 billion and in addition to that continued best-in-class growth distribution of 10% to 12% which is really impressive when you consider the scale and what it takes to grow the cash distributions in this business and something of this scale.

And so continuing to be able to do that through 2017 and maintain strong coverages really provide an investment vehicle that we think absolutely unmatched and it is going to continue to give us the kind of firepower to continue to expand this business larger and larger. So couldn’t be more excited about the combination of this business.

And if you look on Slide 11, this really conveys the breadth her that Williams has but it also shows really what ACMP is doing for us in the upstream piece of our business. And if you think about the way we continually grown a lot of our businesses over the years, we basically have length and lever either the market back into the upstream or we’ve taken the upstream and by that I mean the gathering and processing business and move those opportunities downstream certainly nothing is more obvious about how we’ve done that in recent times even though we’ve done that many times over the years. Nothing is more obvious than the way that’s gone for us up in the Susquehanna supply area, and the ability that we’ve generated in many large projects half of that big upstream growing volumes there.

So if you look at that and think about ACMP today on an operated gathering volumes PZ and ACMP are very close to the same number. And if you look on the capacity basis, WPZ's larger part of that just because of the legacy large scale assets that we’ve had out in the western basins. But nevertheless, very impressive decision in the gathering space upstream and our ability to continue to deliver services and link that the service opportunities for customers downstream.

This basically just reloads our set of opportunities and continuing to grow that, I can tell you it’s didn’t feel like we needed a lot of that, but nevertheless I’ve got a lot of components. And not just the assets, but the combination of the people of ACMP and Williams is in incredible strengths at ACMP, that frankly we are very excited to have hedged to our rag and a lot we can learn frankly from expanding the upstream gathering business and the great job they’ve done there. And what PZ brings to that of course is the ability to continue to expand opportunities beyond that, so tremendous strategic fit, as well as a great financial fit for Williams and WPZ.

So moving on to Slide 12 here, really it couldn’t be more excited about how we’re positioned strategically right now and thrilled to see the ACMP piece come along, just further fills or handout. And the scale and the opportunity set that we have and the growth that we have we think is unmatched. And we have very fired up organization I can tell you right now, very excited to take on these new opportunities, both at the ACMP level and at the Williams level. So very excited about the quarter, disappointed with Geismar, but extremely excited about the second half of this year and the kind of growth we’re going to get to witness here in the second half of the year.

And with that, I'll turn it over to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And first we’ll hear from Christine Cho with Barclays.

Christine Cho – Barclays

Good morning, everyone.

Alan S. Armstrong

Good morning, Christine.

Christine Cho – Barclays

Your other fee revenues in the Northeast doubled quarter-over-quarter even though NGL production didn’t change that much. I’m assuming this was a condensate handling that came on during the quarter. When did that come on and how much of the 6,000 barrels per day capacity are you using currently?

Alan S. Armstrong

Jim, could you take that please.

James E. Scheel

Sure, Christine. I get to talk to you again. That’s correct, that’s the stabilizer fee revenue and the stabilizer came on, it was 50% of the stabilizer I should say came on. You can see we have the first phase of 6,000 barrels a day came on in April of this year.

Christine Cho – Barclays

And then, how much of that capacity are you currently using?

James E. Scheel

We’re using about half of that today and that’s growing as additional wells come online. We’ve got about 73 wells coming online for the balance of the year.

Christine Cho – Barclays

And then if your GPM of the gas is eight or something like that, how much of that is condensate, is 10% a fair assumption?

James E. Scheel

I'm not 100% sure on that Christine. I have to get back with you, but I think that’s pretty close. It’s probably in the 8% to 12%, but I don’t know exactly the number.

Christine Cho – Barclays

Okay. That’s fine. Also, the de-ethanizer getting moved up by a quarter, do this impact volumes in second quarter at all meaning, did anyone have to shut in wells because the gas wouldn’t need pipelines back with ethylene in it.

James E. Scheel

No, we haven’t had any of those issues right now although that continues to be a concern Christine. The de-ethanizer had no impact in the second quarter actually. Even if it’s been online we wouldn’t have had the opportunity to move ethane to know because of some other downstream issues. We’re right now working to commission that asset and it should be up during the third quarter.

Christine Cho – Barclays

Okay, great. And then Alan or Don, I think you’ve told me on a prior call that you guys have right of first refusal as it came into (indiscernible) JV position, but what about on the ACMP side? There are some partners who are backed by private equity and E&P companies, who may or may not want to be a minority owner and such assets in the longer-term. And I would think that they would want to monetize at some point with the combined ACMP, WPZ, MLP have any first rights there.

Alan S. Armstrong

I'm not sure what the confidentiality terms are for ACMP on that issue, so I would rather not comment on what their rights are there. I would just simply say that we do feel like we’re very well positioned to consolidate a lot of those assets in the Utica there and I am pretty excited about between Blue Racer and (indiscernible) what are the opportunities to consolidate look like...

Christine Cho – Barclays

Okay, great. And then while I think its consensus opinion that the first part of the deal of ACMP is accretive. I think there is some confusion in the market as to whether or not the second part of the deal adds to that accretion or chipped away a little from that accretion? Is there any clarification you can provide?

Donald R. Chappel

Christine, it’s Don. Again, since the merger is currently being negotiated or about to be negotiated between the two partnerships, I don’t want to go too far in this, but certainly the way we styled and Williams would take a reduced cash flow in the early period and enjoy a higher cash flows, higher growth beyond, so likely mildly dilutive initially and then turning around pretty quickly.

Christine Cho – Barclays

Okay, perfect. Thank you so much.

Donald R. Chappel

Thank you.

Operator

We’ll next move to Shneur Gershuni with UBS.

Shneur Gershuni – UBS

Hi, good morning guys.

Alan S. Armstrong

Good morning.

Shneur Gershuni – UBS

Alan in your prepared remarks, you have talked about market full of projects and so forth that have seem to come to fruition during the quarter. I think in your slide you’d said that you have got about a backlog of $25 billion at WPZ and another $4 billion at Access. Any sense on how larger this backlog could potentially grow in terms of order of magnitude are we talking in the neighborhood of 10% to 20% or are we talking something significantly higher assuming you’re able to commercially negotiate some projects and so forth?

Alan S. Armstrong

Yeah, I think a couple of thoughts on that. One, we may actually see a lot of opportunities that come to us that require a less capital, so higher earnings and better return, but less capital as we look at opportunities between the two. So I would just say the opportunities may not be measured in capital that may be measured in earnings growth.

But I would just tell you that the number of opportunities that we’re looking – that just keep coming at us along the Transco system and on the Northwest Pipeline System as the market continues on the demand side, you try to figure out how to take advantage of all of this low cost gas and continued confidence in low cost gas is pretty impressive that given what a deficit we had in storage this year and we’re sitting at a sub-ford gas price really tells you the confidence that the demand side has in the supply capabilities and long-term supply capabilities of the gas basins. But what that’s developing is a lot of major downstream coal projects.

And so, I would tell you, I think a lot of growth is actually going to come from that – and our ability to connect these supply into those opportunities. And of course, all of that new gas supply leads into both natural gas liquids and olefins as well. As we produce that gas, we got to do something with the liquids and find markets for those liquids.

So I would tell you rather than the ACMP combination, driving a lot of capital, increases, I would say it’s likely going to drive particularly in the Northeast, that will drive some higher earnings, but perhaps I don’t know that it will reduce our capital, but I would say a lot of that would be just higher earnings in the year.

Shneur Gershuni – UBS

Great. A couple of quick follow-ups. We saw some ramps in volumes in the Northeast and you didn’t have any change to your 2015 guidance. Is it fair to say that, the way the Northeast acted in the second quarter is exactly the way you wanted it to, it’s running according to plan, and you would expect to see a significant acceleration in 3Q and 4Q? I was wondering if you can sort walk us through the ramp as to how we go from 1Q and 2Q of this year as to how we end up with kind of the guidance for 2015 in terms of where you expect the big pickup in ramp acceleration?

Alan S. Armstrong

That’s an excellent question. And I’d tell you I’m very excited with what we’re seeing there in the engagement, I’m going to ask Jim Scheel to provide little more color on that. Thank you for asking the question.

James E. Scheel

I will answer that in a couple of phases. I think we are very, excited about the progress we’re making in the Susquehanna supply hub or AVA area. We’re right on target actually probably ahead of where we wanted to be. We have a lot of projects coming online. During the third and fourth quarters of this year, they will be on-time, on-time. We’re growing those volumes by about 34% versus prior year as we come out of the year, and quarter-over-quarter this year we’re up 8%. So obviously, we have always wanted to do better up there, and smash gas into the system, but we’re right on target with where we want to be.

OVM has been a bit of different story. It’s very consistent with the last – with the Analyst Day and the last earnings call. You can actually on Page 20 of the book that we’ve lowered our average volumes for the year, that’s primarily due to a number of producers having some challenges at the front-end of the year, and so we’re seeing a delay on wells coming online.

But we will actually end the year higher, we adjusted the number for the year-end at 420, and again as I had mentioned a bit earlier, we have a number of wells, so we have a lots of visibility on getting ready to come online, we have 73 wet Marcellus. And in addition to that, we have some dry Utica wells that’s not included in that overall number, that could actually add to some of the volumes but obviously that will be at a bit of a lower rate.

Our biggest issues right now as we look into the third quarter are commissioning the assets that will drive some incremental fee revenue. You’ll see our fee revenues increasing. And then just seeing when the producers tie the lines in. LMN is on target with where we expect for the most part and lend the year about 25% higher than last year, as well.

So although there are challenges in the North East, that we’ve been seeing around OVM on the producer side, the good news is unlike past discussion with the assets seem to have the reliability in order to move the gas and we’ll be able to meet our customer’s needs since we go through the third and fourth quarter with the incremental processing options for them.

Shneur Gershuni – UBS

Great. One last question if I may, just if we can turn to Geismar, obviously a disappointment that it wasn’t able to start up on time so forth. I was just wondering if you can sort of elaborate a little bit on the issues. Did it come up in the inspection process and sort of prevent a permit from being issued, or is this something that you’ve just decided to do over and above the process and all permits and everything is in place. Just wondering if you can give us a little bit of color around the safety measures that are being enhanced?

Alan S. Armstrong

We may have John Dearborn take that he’s been Right Square in the middle of that.

John R. Dearborn

And thanks for the question. Very good type of question as well the way you asked it. And to take on the first part of your question as to whether it had something to do with the permits, I would say no, not at all. It rather to put it into some context for you, the overall plant and in the overall plant there are more than 750 pressure safety valves throughout that plant. And on a regular basis you go through and you study overpressure scenarios on these various pieces of equipment and how these valves are expected to control overpressure circumstances.

And prior to the incident and then of course as a result of the incident we were doing over pressure studies. And they were being done in a very prioritized way and a very careful way as well. We have to be very deliberate, very disciplined in how we go about doing this work. And the work has progressed extremely well, some of the valves, I’ll just give you an idea, some of the valves get studied and the valve is fine and you put the documentation to the file about how the valve has been re-studied, and no further work was needed.

In prioritization we left several course of values for the end of the study. And it was not until early in July as this study was finishing up that we came to learn of a particular scenario that truly required mitigation. So as we tend to learn that, we think considered several strategies that could have potentially worked in the circumstance and determine that’s the best solution we could have applied was to install several new PSVs. And just to understand the number of several is really about 12 PSVs are being installed and to replace several sections of hyping.

Now it happens that – the full impact of this essentially new work on our schedule was not known until earlier this week and frankly it’s what resulted in this disappointing disclosure today, but I just want to reiterate once again that we are taking this extra precaution here to enhance the safety of our workers and the public. And I hope that provide some adequate color to everyone on the phone about this entire issue that we are quadrupling with as we move forward towards the safe and sustainable re-start of the plant.

Shneur Gershuni – UBS

Great. That is extremely helpful. Thank you very much.

Operator

And we move on next to Brian Belski with Morgan Stanley.

Brian Belski – Morgan Stanley

Good morning. I just following-up on guys who are real quick. I was just wondering if you guys could discuss a little more lines. How now was the drivers of your ranges in terms of first ethylene production and what could possibly the way it is further?

Alan S. Armstrong

Sure. Glad to bring some color to that. So let’s reflect again about what happened back at the time of the year (indiscernible) down in a very unusual and a hard way right. We have to take some unusual precautions and go through certain procedures in order to clean it out. And so certainly there could be some potential risks related to some of the equipment that as a result of the way the head gone down.

Secondarily I would say, there is always a concern that exists around re-start of a plant especially when it’s been expanded now, as to whether this system has designed to, has re-installed work had take for instance rotating equipments, sometimes you have to go in and look at rotating equipment second time. Now that’s historically happen to us from time to time, it does it. We don’t know anything today that says we should have an unusual worriers on this start up.

So I have nothing that I know about at the moment, but we’ve abundance of caution, we thought it was, it was appropriate to guide that, that start-up is not risk free, once we are through this next round of better installation of pressure safety release 1,000, and that’s the entirety of the story behind the contingency range that we put around that start-up.

Brian Belski – Morgan Stanley

Got it. And Don, I was wondering if you could update us on your discussions with the insurance companies and recovery expectations and kind of once we get in this outer period, where you could be above your business interruption insurance, how you’re kind of thinking about that, and how that’s kind of baked into guidance?

Donald R. Chappel

I’d say, now that, now that the plant is substantially complete from a construction standpoint of removing very quickly towards the start-up, most of the facts are now very well known, and obviously we’ll continue to update our plan as we move through start-up. We’ve retained some expert consultants if you will that are doing studies to support our claim, we plan to present those studies and conclusions to the insurers at the fall and we were hopeful that, that would then start the next round of settlement discussions.

Brian Belski – Morgan Stanley

And in terms of, I think you mentioned previously, you expected to use your ATM kind of in 2014 and be large throughout the equity markets, and in 2015 FPZ you put out kind of a share count, applying some meaningful equity assurance in the back half of the year, I just want to make sure that was a kind of still your expectation that you do, any incremental equity on the on ATM this year and you’d be largely out of the markets up easy next year.

Alan S. Armstrong

That in fact is the case, again our financing plan is pretty well unchanged, obviously the drop down of the remaining Williams assets is another factor and we’re looking to do that ideally post merger on in late 2014 early 2015.

Brian Belski – Morgan Stanley

And then finally, I think Cabot mentioned on their call, some infrastructure issues that they were having which impacted their production this quarter, I was wondering if you guys could just elaborate from your perspective what some of those issues were and kind of have they been resolved going forward?

James E. Scheel

Well, again, this is Jim Scheel, I will comment on that again, I’ve listened to the earnings call too, and I want to just reiterate, our performance quarter-over-quarter were 8% more than we were previous quarter and first quarter is 4% more than the year end. So we’ve been continuing to grow volumes obviously we have to do a fantastic job in coordinating volumes into the system.

I think Cabot is probably relating more to the opportunities missed just by some coordination on scheduling gas, because actually we were moving more than we have and again as the additional horsepower comes on line during the third and fourth quarter of this year, we’re going to a see rather rapid ramp up so that we finish the year by 34% more. So again I appreciate the concern to the shapers but we continue to put more gas to that system and are only accelerating that as we in the year.

Brian Belski – Morgan Stanley

And just finally from me, I mean in terms of any update – in terms of timing on the SMP WPZ negotiations. Is there any update from your most recent disclosure?

Alan S. Armstrong

Nothing new, I would study the complex many users are working hard and have got are very well advised and I think everybody understands the importance of moving ahead with some diligence and that’s exactly what’s going on right now.

Brian Belski – Morgan Stanley

Thank you, gentlemen.

Alan S. Armstrong

Thank you

Operator

And next we will move on to Abhi Rajendran with Credit Suisse.

Abhi Rajendran – Credit Suisse

Hi, good morning guys.

Alan S. Armstrong

Good morning

Donald R. Chappel

Good morning

Abhi Rajendran – Credit Suisse

In your data book for WMB you show a revised look at the excess cash flow available even after the dividend step up which is around 20% for year through 2016. And it sounds like the remaining part of the deal will be – may be modestly dilutive upfront than accretive beyond that. So, I guess how should we think about the current and potentially more access coverage been brought down over time once the entire deal is done.

Donald R. Chappel

Abhi again, yes, we would expect some of that excess coverage to come of because one of the consideration that Williams is making here is moving the distributions we received drilling to the ACMP schedule in terms of those IDRs, so the Williams is making a I will call it a concession there to enable the merger, and we think that that’s going to drive significant value long term, but certainly with the some near-term reduction in cash flows, however, by 2017 that really turns around and we would expect to have a nice increase in accretion if you will cash flow accretion on a per share basis. I hope is that answers your question

Abhi Rajendran – Credit Suisse

Yeah, I know that helps. And then, just a couple of other quick ones, WPZ had a shortfall this year of about $400 million between DCF and distribution, so I guess how should we think about how you make this up, is this just with, with capital raises or do you need any sort of support from WMB, any color there would be helpful.

Alan S. Armstrong

We expect that WPZ’s financing plan is largely intact, I think at midpoint here, we moved the cash flow about $150 million, and as well we do have and anticipate a litigation settlement that we would expect would largely offset that in terms of cash, so we think not a lot of change there. Just going back to the cash flow, your first question there, I would point out that, our 2017 to 2019 cash tax guidance is (indiscernible) at 14% and we would expect that to come down somewhat as we continue to add to our capital spending.

As you can see, our capital spending is about $4 billion this year, and declines $2 billion in change by 2016, just because we, what we have in guidance is really sanctioned projects, and we have a lot projects, organic projects that we’re working on, that is – those are added to guidance, and those projects are replacement service that will continue to press that cash tax rate down somewhat. So, just consider that as you’re building your models.

Right now our run rate seems to be about in the $4 billion range, and if you take that $25 billion and divide it by the six year, you get about $4 billion a year and that’s pre-ACMP, that is spending about $1 billion a year. So, you can think about that as you think about our cash tax rate. And while the rate looks to be fairly low, remember that, that’s based on cash distributions received. And if you look at it on a percent of pre-tax income, which is more conventional, you’ll see the rates quite a bit higher.

Abhi Rajendran – Credit Suisse

Okay, got it. That’s helpful. And then just last quick one from me, on the Canadian projects, can you talk a little bit about what’s driving the shift back in CapEx, and this is at the WMB, NGL petchem segment level, are these in delays locking on customers or just as slower than expected construction schedule, any color there would be helpful.

Donald R. Chappel

Yeah. Great question, and particularly the PDH project is what I assume you’re referring to primarily, and the other being the Syncrude, and I’d just tell you that, given the kind of increases that we’re seeing in the petchem space on the engineering and construction side, and the kind of demand we’re seeing on labor, and we expect to continue to press forward, we are working very hard to not get ourselves in a difficult situation relative to schedule and to make sure that we are pushing away from that risk as much as possible in terms of overruns because we do as we look forward we see a lot of pressure on the skilled labor that it's going to take to build out this infrastructure, and so I’d just tell you that we are making sure as we move forward into that, we don’t get ourselves in position where we’re reliant on thinner and thinner resources and lower and lower productivity and so that’s the primary cause.

Abhi Rajendran – Credit Suisse

Okay, got it. Thanks very much.

Operator

And we will move on to Ted Durbin with Goldman Sachs

Theodore Durbin – Goldman Sachs, Goldman, Sachs & Co.

Thanks. Just sticking with the sort of the Petchem, and I guess bigger picture. Do you see been in a petrochemical business is a core confidence for you or do you think it may be distracting you from some of the maybe bigger midstream activities that you have, should be read into this PTH maybe delayed something around there. There is some questions around. I am just wondering if you can just talk about that part of the value chain a bit more.

Alan S. Armstrong

Yeah, sure. We continued to see the Petchem business is not, for Williams is not being in the Petchem business for the shake of being in the PetChem business frankly, but really as a pull-through and the market outlet for these barging NGL supplies and so certainly I would say, it’s a little bit different between Canada and the Geismar facility because in Canada really we pursued that many years ago because mostly that is a processing business, we are not actually reforming any molecules there that’s being done at the upgraders works simply, but extracting that through typical project processing and then fractionating it just like we do in other sectors of our business.

And so, in Canada I would tell you that the competencies If you will or not very different and we’ve certainly got a very strong competitive advantage there but in both cases in both case of Geismar and as we would move into PTH, we continue to look at that as an outlet for products and a way for us to continue to provide market access for our customers that otherwise showing up.

So I would tell you that's how we look we think about it and we certainly think about it in terms of being more of a fee-based business. I think it’s a very good question that you raise and certainly given the great number of opportunities that we have in front of us its always, that's always an issue of capital allocation for us, and as part of the reason as I just answer you before, part of the reasons that were making sure we don’t get ourselves into a difficult spot there in that piece of business because we do see a lot of pressure in getting that business built out particularly on the PDA facility.

So in the end, I’ll just tell you we continue to look at it as a place for us to expand market for us and for our customers. I think it’s a very nice complement to the Ethane link that we’ve had for years and it’s a good place to provide market for our customers. And that’s kind of the extent of it in terms of how we look at it. We don’t look at it as being in the petchem business to be a petchem player.

Theodore Durbin – Goldman Sachs, Goldman, Sachs & Co.

Understood, that’s very helpful. If I can just shift back to the Northeast, I’m just wondering if you’re seeing any reaction by the producers to some of the gas price volatility and to the price declines we’ve seen recently and especially some of the regional basis issues that clearly people are still having there. It sounds like the issues have been more sort of physical and tie-in challenges and what not, but is there any sort of bigger reaction from producers from the low gas we’ve seen in the Northeast?

Alan S. Armstrong

Yes, I know and to be fair I would say that given the kind of recent push down in pricing it really just happened here. We’ve had balanced with it, but we really just pushed down here over the last month or so. I would say it’s a little bit early to call that frankly. But certainly the activities that we saw in the first half of the year are just an outcome in fruition and there’s been quite a flurry of activity on the drilling side, both in the wet Marcellus, the dry Marcellus up in the Northeast, and now starting with some of the dry Utica in the OVM area.

And so that in the first half of the year I would tell you that, that’s been pretty strong. I think it’s a little bit early to call with this more recent weakness in natural gas if that’s going to slow much of that down. But so far we certainly haven’t seen any signs of that. And I would tell you that I think the producers are getting, particularly in the OVM area, are getting better and better understanding what they’ve got there and are more and more excited about it. So we’ll see what happens, but I think it’s a little bit early to see we’ve seen any kind of reaction at this point.

Theodore Durbin – Goldman Sachs, Goldman, Sachs & Co.

Okay. And then just last one from me on constitution, any update on to the regulatory and permitting process there?

Alan S. Armstrong

Not much to add there. I think we’re very pleased with the way the FERC has continued to press forward on that. And we’re working hard to work with the New York DC and communicate to them the importance of this infrastructure and the need to deal with some of the water quality, or some of the water processing permit that the New York DC has in their hands. So we’re really kind of remain focused on that issue and I would say we’ve made progress, but we haven’t solved that problem yet.

Theodore Durbin – Goldman Sachs, Goldman, Sachs & Co.

Okay, thanks. That’s it from me.

Operator

Next, we move on to Carl Kirst with BMO Capital.

Carl Kirst – BMO Capital

Thanks. Good morning everybody. I think I’ve just got two questions left and now in understanding and appreciating your comments around the Canadian PDA facility and labor inflation in the like. I think prior we were thinking that maybe this could come to ahead by year-end and so just trying to kind of getting a little bit more color on what you were saying earlier. Is this something that we should kind of just think of now as more just on the back burn or it’s kind of on hold or is that still progressing?

Alan S. Armstrong

Yeah, not at all, there is tremendous amount of work. We’ve made great progress with the polypropylene type contract if you will that takes quite a bit of the price risk out of it. And I would just say both parties – both us and the party that would have the polypropylene type are working diligently to make sure that we’ve got great confidence in our estimates and the work plan it would to construct it in a low risk manner. And will tell you the work is probably at an all time high in terms of the making sure that we’re very confident of where we stand with the estimate and we do very much expect to conclude – and have a pin down by the end of the year. And so in no way should you consider it’s on the backbone or is it just absolutely making sure we de-risk it as much as possible before the end of the quarter.

Carl Kirst – BMO Capital

I understood. Appreciate the clarification. And then just last question and maybe this is on Geismar, with respect to the pressure scenarios that were studied, clearly Ethylene like plants are not like processing plants. I guess not exactly a cookie cutter approach here and what I am wondering is that to the extent that this plant has been rebuilt or perhaps studied now maybe with all of the different scenarios that are out there from a safety standpoint. Does this is in anyway may Geismar. I hesitate to call it best in class because of what we have gone through but as we kind of look forward from this point today does that in anyway help you to distinguish yourself from other plants and then how ultimately does that perhaps help or hinder your (indiscernible).

Alan S. Armstrong

Yeah, Carl, good question. I would we certainly are coming out of this much stronger than we went into it both from an operational focus and reliability and worked hard to really improve the older plant as well as making sure that those learning’s were built in to the new plant as well. I would tell you that probably the fact that we’ve got a team that’s been right in the middle of a major construction project like this, that’s also looking at guys number two; and so it’s not some distant memory of the lessons learnt.

It’s going to – real and available, puts us in a very knowledgeable position to push forward with guys or two if that’s what we choose to do. So we’d just say, I’m very thankful that we’ve got a team that is – this has been a really tough project if you think about, if you’re managing this major expansion project in the first place in and around the plant and then have a major explosion that isolates us from being able to complete the plan right in the middle of the project, that’s a project manager’s worse nightmare.

And yet, they’ve hung with it, and so I’d just say, we’ve got a team that’s very shooled on what it takes to be successful, as we look forward into guys from two; and certainly the team all have a lot of confidence in pushing forward as we look to guys with two opportunity.

Carl Kirst – BMO Capital

Great. I appreciate the color. Thanks guys.

Operator

And next, we move on to Sharon Lui with Wells Fargo.

Sharon Lui – Wells Fargo

Hi, good morning.

Alan S. Armstrong

Good morning.

Donald R. Chappel

Good morning, Sharon.

Sharon Lui – Wells Fargo

Don, I guess with regards to the dividend illustration you provided, those tax rates, do you anticipate those cash tax rates to change materially if the ACMP, WPZ transactions occurs?

Donald R. Chappel

No, Sharon, we do not, so we don’t expect that to change. The distributions will change somewhat, so there will be some effect, but we wouldn’t expect any material change in those tax rates as a result of that, I think, right now they’re driven largely by placing assets in service, and we are in the middle of an appraisal for both accounting and tax purposes, so there will be some adjustment of estimates along the way as we conclude both the accounting and tax appraisals that are really key in this process.

Sharon Lui – Wells Fargo

Okay. And then I guess, just trying to gauge the potential for the unit exchange ratio to be renegotiated, maybe if you could provide some color on some of the key factors management considered when you determine the proposed exchange ratio?

Donald R. Chappel

Sharon, we did some extensive modeling and really trying to come to transaction that we think was value adding both to ACMP and WPZ unit holders, we were trying to balance the considerations there. So obviously, a lot goes into it, but that really was the design criteria we wanted it to be a transaction that we thought would be beneficial to both partnerships, really trying to strike that balance, and that’s really what we put forth in our proposal.

Sharon Lui – Wells Fargo

Okay. And just a last question. I guess given the IRSS’s scrutiny on some of the non-core niche stream activities and PLRs. At this juncture, is there any concern regarding the PLR for Geismar?

Alan S. Armstrong

Not near, not at all.

Sharon Lui – Wells Fargo

Okay, great. Thank you.

Alan S. Armstrong

You’re welcome.

Operator

And we’ll move on to will move on to (indiscernible).

Unidentified Analyst

Good morning, guys.

Alan S. Armstrong

Good morning.

Donald R. Chappel

Good morning.

Unidentified Analyst

So back to Geismar 2 prospects, any further updates around the market capacity to provide long-term fixed return contracting versus commodity exposed returns?

Alan S. Armstrong

Don, do you want to take this?

Donald R. Chappel

I am glad to take that. Thanks very much. Not much has changed since Analyst Day, so just to reiterate where we are there. We’ve got a very warm reception when we put our RPF out to the marketplace and our interest is oversubscribed quite significantly.

What we are doing with this particular investment is, we’re essentially trading off that commodity margin to the buyer – to our joint venture partner in exchange for a fee for service opportunity for WPZ in total concert with our strategy.

And certainly the market’s appetite given recent and current ethylene prices is quite warm to a provider that’s willing to provide on a fee for service basis. So we’re seeing, very, very warm reception and both on the JV side and on the ethylene purchase side for fee for service type of arrangements.

Unidentified Analyst

Great. And when do you see that – is that like a 2015, early 2015 period to try to true up some of those negotiations?

Donald R. Chappel

Yeah, well we’re going to be working those negotiations through this year, and into the early part of the next year. I’m sure, but I think the bigger emphasis here is very much aligned with Alan’s comments earlier about the PDH unit at the strategic level, so until we’re absolutely certain, if we’ve got the commercial deals lined up here, and until we’re absolutely certain, we know how we’re going to execute and de-risk the capital project on an investment of this magnitude, we’re going to hesitate to rush our way into a sanction if I could call it that. So we’ll sanction only when we’re absolutely right from both the commercial and the project side.

Unidentified Analyst

Got it. And Dan if I can return to the insurance recovery question, if I remember when I asked at the Analyst Day the comment was made that on the debates about recoveries had less to do with the debates about what’s the true commodity price should be, versus taking best care in not only being safe, but also being appropriately efficient in starting up again. Could the fact that you’re now delaying start up beyond – comfortable beyond the recovery period, basically albeit that issue a little bit and make it easier to achieve recoveries since you are kind of taking some of the time on your own now accord.

Alan S. Armstrong

Very good question. Certainly the claim – our claim continues to get somewhat larger, because we believe we’ve worked prudently to bring the plant back into the service, obviously insurers who have the money in their pockets, argue against that. But we think we have a very solid claim, we think that our outside experts will help us present our claim in a way that is compelling, and we’re optimistic that we’ll receive very substantial initial payments perhaps as early as late third and fourth quarter.

Unidentified Analyst

Okay. So you think that much of this could be resolved by the time the plant is actually up in running?

Alan S. Armstrong

No, I think more likely its fourth quarter.

Unidentified Analyst

Okay.

Alan S. Armstrong

Yes. The planting up and running in the fourth quarter, but with the target of October date it could take a bit longer than that is I guess my comment.

Unidentified Analyst

I got you. And last question kind of a little broad spectrum and big picture, but we got a couple of things going on with potentially a competing NGL line from the Northeast to Belvieu, may be looking a little better prospect at the moment. And also condensate exports looking more realistic than ever before.

There’s obviously competitive pressures in the new business opportunities from all these types of events across your system, I wonder if you all can just comment on any net positives or negatives from these types of events?

Alan S. Armstrong

Well, I guess if you are just asking generally about the competitive environment that we see out there, I think we continue to see not so much impact from competition frankly. We just have so many opportunities coming out of that’s probably why I want to say it least of our worries, it certainly low on the list. And really the, if you think about some of the larger risk to the business, it’s more around the macro environment and one thing we do compete for frankly we’d become very aware of, obviously compete for rigs from one basin into the next.

And so I think having ACMP alongside give us a little better diversification to that in terms of being expose on that the gas basins, but I would say that really the issue that keeps us focused on getting great market access for our customers and keeps us aligned with them frankly is that we desperately want to see good market access to the basins we’ve invested in and that’s obviously a service we like to provide as well in terms of providing better market access and better long-term markets for their products and so that’s how we continue to go faster.

But I would say on a competitive front that we just got our hand so full with the opportunities that are coming to us more uniquely positioned to win that we not have in depth to stretch very far beyond that.

Unidentified Analyst

Great, I appreciate it. Thanks.

Operator

And our next question will hear form Chris Sighinolfi with Jefferies.

Christopher Sighinolfi – Jefferies

Hey guys, thanks a lot for taking my question. Don, I am just curious I see the guidance with WMB effectively DCF. But I don’t think that’s something that you’ve reported along with quarter report. So I’m just curious if you could either, for the second quarter, sort of provide on the same schedule with how you would guide it what the WMB entity was and is that something that on a go forward you’re planning to report as part of the financial?

Donald R. Chappel

Chris, great question. Yeah, we have not done that but we certainly expect to – you can look for that next quarter.

Christopher Sighinolfi – Jefferies

Okay. And any broad payment as to what it’s might have been for the quarter?

Donald R. Chappel

I don’t have that number on hand, I don’t know if John has it but we can get it to, we can post it on our website.

Christopher Sighinolfi – Jefferies

Okay, great, that will be helpful, thanks, Don.

Donald R. Chappel

And I just comment here. Again, we are going through a transition here with ACMP and our acquisition of the additional interest will now cause us to consolidate ACMP beginning in the third quarter, which will create some differences in reporting obviously, we have been reporting on the equity basis will be fully consolidated, will be booking a gain, significant gain in the third quarter to revalue our initial investment in the ACMP, we’ll be booking some substantial and tangible assets, and we have some additional depreciation, amortization related to those assets as well. So just kind of a heads up and look forward to quite a bit different presentation, you still get to the same bottom line here in terms of cash flow, but from a balance sheet and in the earning standpoint there will be some changes in the basis of presentation.

Christopher Sighinolfi – Jefferies

Okay. Great. Thanks Don.

Donald R. Chappel

You’re welcome.

Operator

And our last question today will come from Bradley Olsen with TPH

Bradley Olsen – TPH

Hey, good morning guys. Thanks for fitting me in. I know we are ruining a little bit late, so I really only got one question, now that you have closed the ACMP general partner acquisition. Can you comment on any ongoing efforts to retain keepers for now from access, and kind of broadly speaking how successful those efforts have been?

Donald R. Chappel

Sure. That’s certainly something we are very much value that organization and their capabilities and that was high on our list of things to accomplish, and so we did move strictly and aggressively to do so, and I think we are very comfortable with where we are right now on that front. And so what a great work by our teams here at Williams and the team at access to really address for any of those issues might be and take care of put strictly so I would say we feel very good about where we stand today and I am particularly proud of both the organizations coming together to work us so quickly.

Bradley Olsen – TPH

Okay, great. So broadly speaking I guess it's fair to say that in the Utica and the Northeast were access is maybe most of their capital is being deployed that the team is kind of largely intact for a post aquisition

Donald R. Chappel

That’s correct

Bradley Olsen – TPH

Great. Thanks guys.

Donald R. Chappel

Thank you.

Operator

And that will conclude today’s question-and-answer session. I would like to turn the call back over to Alan Armstrong for any additional or closing remarks.

Alan S. Armstrong

Great, thank you. Thanks for all the great questions, as you can see we’re excited about the future we've got in front of us and this team is – I think discontinues to generate momentum towards this vision that we have of really being the premier player in this natural gas super cycle and very excited about the opportunities that keep coming at us and we keep executing on to accomplish that, and we look forward to reporting to you in the third quarter with great continued progress and certainly at the balance of the year. Thanks for joining us today.

Operator

And that does conclude today's call. We thank you for your participation.

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