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

Q2 2014 Earnings Conference Call

July 30, 2014 09:00 ET

Executives

Alyson Gilbert - Investor Relations

Mike Stice - Chief Executive Officer

Dave Shiels - Chief Financial Officer

Bob Purgason - Chief Operating Officer

Analysts

Brian Lasky - Morgan Stanley

Abhi Rajendran - Credit Suisse

Jeff Birnbaum - UBS

Darren Horowitz - Raymond James

TJ Schultz - RBC

Sharon Lui - Wells Fargo

James Jampel - HITE

Operator

Good morning, and welcome to the Access Midstream Partners, ACMP Second Quarter 2014 Earnings Call. Today’s conference is being recorded. At this time, I will turn the call over to Alyson Gilbert in ACMP Investor Relations. Please go ahead, ma’am.

Alyson Gilbert - Investor Relations

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

Today’s discussion will include information regarding non-GAAP financial measures such as adjusted EBITDA and distributable cash flow. Please refer to the Investor Relations section of our website for SEC required reconciliations of these measures. Finally, today we will discuss forward-looking statements that give our current expectations or forecasts of future events. They may include, but are not limited to, estimates of expected volumes, future operating expenses, planned capital expenditures and anticipated asset acquisitions and sales. They may also include statements concerning anticipated cash flow, liquidity, business strategy and other plans and objectives for future operations. Although we believe the expectations and forecasts reflected in these forward-looking statements are reasonable, we can give no assurance they will prove to be correct. Please see our 2013 Annual Report on Form 10-K and our other SEC filings for a listing of factors that could cause actual results to differ materially from expected results.

With that, we will get started and I will turn the call over to Mike.

Mike Stice - Chief Executive Officer

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

Earlier this month, Williams announced it acquired all of Global Infrastructure Partners’ ownership interest in Access Midstream giving Williams 100% ownership of Access’ general partner. Williams also proposed the merger of Williams Partners L.P. into Access, and the conflicts committees for Williams Partners and Access have retained legal and financial advisors to consider this proposal. We are truly excited about joining the Williams family. Williams is a large, growing natural gas and NGL-focused midstream company with more than 5,000 employees across North America. The acquisition of GIP’s ownership interest in Access will allow Williams to build on its leading position in the unregulated gathering and processing space and in the most attractive basins across North America. Both Access and Williams are experiencing robust growth and this growth will benefit both our customers and our employees.

We expect customers to benefit from the expanded organizational capability and regional scale that only the combined business provides. We also expect employees to benefit from additional opportunity for advancement and from the additional benefits of being a member of the larger Williams family. At the closing of the acquisition, Williams added three new members to the Access Board of Directors. Robyn Ewing has served as Senior Vice President and Chief Administrative Officer of Williams since 2008 and joined Williams in 1998. Sarah Miller has served as Vice President, Corporate Secretary and Assistant General Counsel of Williams since 2011 and has been with Williams since 2000. And Rick Rodekohr has served as Vice President, Financial Planning and Analysis at Williams since January 2013 and joined Williams in 1995.

I would like to welcome each of these new members to the Access Midstream Board of Directors. Our Board now consists of 11 directors. In addition to the three new members, the following remain as members of the board, David Daberko, Phil Frederickson, Suedeen Kelly, Alan Armstrong, Don Chappel, Frank Billings, Bob Purgason and I. Obviously the acquisition by Williams brings the Access relationship with GIP to an end. As a result, we accepted the resignation of four board members associated with the GIP investment, Jim Cleary, Bill Berry, Bill Woodburn and Will Brilliant.

GIP has been an important part of our success and we are pleased we were able to create significant value for GIP and their investors and I would like to specifically thank each of these board members for their outstanding service. I further want to thank GIP more broadly for their significant contribution to our success. In connection with GIP’s exit, Nick Dell'Osso has also left the Access board and I would like to thank him for his contributions to Access Midstream. Nick and I established a strong personal and professional friendship during this journey and I look forward to continuing to provide him and Chesapeake with the highest quality midstream services.

All of our Access Midstream employees continue to focus on serving our customers and executing on our significant growth plan. We also remain focused on continuing to deliver strong returns for ACMP investors. The second quarter results are further evidence of the strength of our business model and the execution culture that lies within Access. I fully expect we will continue to successfully meet or exceed the high expectations of our producer customers and our investors.

The construction efforts on our processing and fractionation facilities in various regions continue to remain on schedule and on budget. In the Utica, both our Access-operated cardinal gathering system and M3-operated Utica East Ohio Midstream joint ventures remain operationally on track. We expect the Harrison Hub facility to have over 135,000 barrels per day of capacity available later this quarter. We currently have 600 million a day of processing capacity in operation at our Kensington facility with the final 200 million cubic feet a day at Kensington coming online on May 30 earlier this year. In addition, construction continues on the Leesville facility that will expand the UEOM’s capacity and footprint, adding another 200 million cubic feet a day of processing capacity in the fourth quarter and a further 200 million cubic feet a day in late 2015. This will bring our total nameplate capacity to 1 billion cubic feet per day. More exciting, our business development team continues to add new customers in this region due to the competitive advantage these state-of-the-art facilities provide.

In the Niobrara, we remain on track to commission two additional compressor facilities along with the Bucking Horse Processing Plant in Converse County in the fourth quarter of this year. The foundations for the plant are nearly complete and major equipment is currently being set on site. I plan to tour these facilities early next week.

Our Marcellus team continues to execute well with an increase in gross average daily throughput from 2.18 Bcf a day in the second quarter last year to 2.67 Bcf a day this year, an increase of 22%. The Marcellus has realized a significant increase in non-Chesapeake volumes as we continue to make inroads with our other producer customers.

In the Haynesville, we are seeing the uptick in producer activity that will contribute to third and fourth quarter volumes without any further investment required by ACMP. In the Eagle Ford, the oil revenues are the coveted prize. Our team’s efforts continue to focus on removing the gas and contaminants to allow producers to capture this prize. In 2013, our TRIR, or total recordable incident rate, was 0.34 already making us one of the safest companies in the industry. For the first six months of 2014, I am proud to report that we further improved our TRIR to 0.14. I am very pleased with this outstanding safety performance, but I keep reminding our employees that our goal continues to be zero safety and environmental incidents.

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

Dave Shiels - Chief Financial Officer

Thank you, Mike. Good morning, everyone. Our second quarter results were once again excellent and we remain focused on executing our business model to generate consistent financial performance through the remainder of 2014. We are also well-positioned to deliver longer term results consistent with the three-year public guidance we shared with investors at our Investor and Analyst Meeting in May.

Second quarter 2014 adjusted EBITDA totaled $275 million, an increase of $69 million or 33% compared to the 2013 second quarter. Distributable cash flow totaled $200 million in the second quarter, up $48 million or 31% compared to the 2013 second quarter. The resulting distribution coverage for the first quarter was 1.45 times. Gathering volumes for the second quarter totaled 3.92 Bcf per day, an increase of 7% over the 2013 second quarter. As a reminder, these throughput amounts include volume from our equity investments, but revenue does not include the equity investment results.

All of the revenue and expense impacts from our equity investments are included in the income from unconsolidated affiliate line on the income statement. Revenue for the second quarter totaled $293 million, an increase of $46 million or 19% over last year’s second quarter. If we included revenue from equity method joint ventures in the revenue line on the income statement, our consolidated revenue would have increased 23% versus second quarter last year.

Total CapEx spend was $308 million during the second quarter. The primary drivers of capital spending were the Utica, where we invested $133 million, the Marcellus where we invested $47 million and the Eagle Ford, where we invested $46 million. Our capital expenditures in the second quarter were in line with our expectations and consistent with our total year public guidance of $1.2 billion to $1.3 billion for 2014.

Our Marcellus region continues to generate outstanding results with 1.2 billion cubic feet per day of throughput for the second quarter, net to ACMP’s interest, an increase of 19% year-over-year. The Eagle Ford also continues to perform well with second quarter throughput of 293 million cubic feet per day, an increase of 14% compared to the second quarter of last year, generating an increase in revenue of 24%. Throughput in the Utica continues to ramp and increased from an average of 233 million cubic feet in this year’s first quarter to an average of 320 million cubic feet per day in the second quarter. The throughput exit rate for the second quarter was about 380 million cubic feet per day. Last year at this time we had almost no throughput activity in the Utica. As Mike mentioned the construction of processing facilities in the Utica remains on time and on budget.

In the Barnett average throughput decreased from 1.02 Bcf per day in the second quarter last year to 925 million cubic feet per day this year due to a decrease in drilling activity by Chesapeake and Total. We expect to record revenue associated with our contractual minimum volume commitment in the Barnett of about $118 million for 2014 in the fourth quarter of 2014. After adjusting EBITDA by $26.5 million in the first quarter, we have adjusted EBITDA by $32.5 million in the second quarter for a total of $59 million or 50% of the total revenue expected to be recognized at the end of the year.

Haynesville throughput averaged 608 million cubic feet per day in the second quarter, a decrease of 13% compared to the 2013 second quarter. At the end of the 2014 we expect to record minimum volume commitment revenue of approximately $16 million for the Mansfield system in the Haynesville and have adjusted EBITDA in the second quarter by $4 million. The total EBITDA adjustment for the Barnett and Haynesville MVCs was $36.5 million in the second quarter.

Mid-Continent average throughput was 564 million cubic feet per day, a decrease of 7% compared to last year’s second quarter. A combination of the 2.5% annual fee escalation and rate re-determination effective January 1, 2014 generated an 18% revenue increase in the Mid-Continent. We have received two credit ratings upgrades in the first half of the year, from Ba2 to Ba1 by Moody’s in February and from BB to BB Plus by S&P in May. Both rating agencies have us on review for upgrade. Our first half ratings outcomes reflect our strong credit profile, dedication to continuous credit improvement and our history of operational and financial execution. Additionally, our customer portfolio’s credit impact has improved through diversifying our customer mix and from the improving credit strength of our largest customer, Chesapeake Energy.

On Monday we announced an increase in our quarterly distribution from $0.575 per common unit to $0.595 per common unit. The $0.02 increase represents an increase of 23% versus the second quarter last year, and a 3.5% increase versus the first quarter this year. The distribution will be paid on August 14. As mentioned earlier, our DCF provided a strong distribution coverage ratio of 1.45 times.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We will take our first question from Brian Lasky of Morgan Stanley.

Mike Stice

Good morning, Brian.

Dave Shiels

Good morning, Brian. Go ahead Brian.

Brian Lasky - Morgan Stanley

Sorry can you her me now?

Mike Stice

Yes, I hear you now.

Brian Lasky - Morgan Stanley

Sorry about that. Can you just provide a little more color on your first quarter Marcellus volumes, it looks – sorry your second quarter Marcellus volumes, it looks like they were off a little bit from the first quarter, so if you can just provide a little bit more color there. And then also you talked a little bit about your exit rate in the Utica, obviously a pretty significant jump there, can you just kind of provide a little bit more color on how you see those trending kind of through year end?

Bob Purgason

Yes. Brian, this is Bob. On the Marcellus volumes I would say we are just seeing slightly flattening off here. We have had tremendous growth there, but until we have a few more pressure projects coming on early next year, you won’t see much change in volumes going there. Producing all out, we are still connecting wells and still very pleased with the record performance up in the Marcellus. And as you noted and as we have been talking on the Utica, it continues to grow as we add our infrastructure up there, both additional processing and our gathering footprint up there, so e continue to see and will see all this year strong Utica growth.

Mike Stice

And Brian, part of what’s informing the second quarter number is we did have a two to three day operational upset in the Stagecoach facility up in the Marcellus which impacted second quarter volumes. Just some foaming occurred and we had to take the system down and clean it up a bit, but their operational teams responded quickly and got that up and running. But that’s having some impact on the quarter-to-quarter decline you are referencing.

Brian Lasky - Morgan Stanley

Got it. And then Mike, you referenced kind of some of the benefits of regional scale and diversification by being part of the broader Williams’ umbrella at this point, I want to – I was wondering if you can kind of elaborate on some of those opportunities a little bit more and maybe discuss how they may differ if you are a standalone entity versus if you were merged with WPZ?

Mike Stice

Well, as you know that in connection with the Williams Companies’ acquisition of the GP, Williams has proposed to merge Access Midstream and Williams Partners, but because Williams Companies controls the general partners of both partnerships we referred the proposal to our conflicts committee. And the conflicts committee has engaged its own legal and financial advisors and is thoroughly evaluating the proposal, which would include capturing those opportunities you have asked me to elaborate on. So if the conflicts committee and Williams were to reach agreement on the terms of a merger of WPZ and ACMP, we would announce it promptly. But until that time, I do not expect to be able to provide any further information or updates on the process or merits of those negotiations.

Brian Lasky - Morgan Stanley

Got it. And is there expectation of timing you can provide or no?

Mike Stice

We think we highlighted previously that we think those conversation are – they are ongoing. We have already made a management presentation to both conflict committees. Everyone is engaged. We said in the previous announcement that we would try to get this in before the end of the year.

Brian Lasky - Morgan Stanley

Perfect. And then one last one for me, just in terms of the RKI and Chesapeake’s swap over in the Powder River, does that impact your view of production trends there at all or volume trends?

Mike Stice

We view the transaction very positively on a couple of fronts. One, RKI and Chesapeake are consolidating their positions. RKI is consolidating into the North, which is outside of our dedicated acreage area, and they are the operator up there. And Chesapeake is consolidating into the South inside our dedication area. So this from our standpoint means Chesapeake has further control and motivation to drill and maximize the value of their upstream operation there right underneath our development. So we view that transaction as being very positive.

Brian Lasky - Morgan Stanley

Perfect. Thank you, gentlemen.

Bob Purgason

Thanks, Brian.

Operator

And we will take our next question from Abhi Rajendran with Credit Suisse.

Abhi Rajendran - Credit Suisse

Hi, good morning guys.

Bob Purgason

Good morning, Abhi.

Abhi Rajendran - Credit Suisse

A couple of quick questions. So, just kind of a general commodity question, given the recent weakness we have seen in nat gas prices, just curious if you are seeing any changes in customer behavior or if there is anything showing up in your volume data? Any color there would be helpful.

Bob Purgason

Yes. Abhi, I think it’s just interesting to note that we are not seeing huge changes in customer behavior, but we are seeing in conversations with folks where we have lots of new development opportunities, say the South Marcellus and the Utica Dry, those big areas where there is still a lot of supply opportunity, we are seeing those projects waiting for the downstream markets to catch up. I would say we are at bit of a supply macro perspective. I call it a plateau waiting for that next wave of demand. And we are in a great spot I think in terms of building the infrastructure out for this growth, but we are not on the steep part of the curve until we get some more demand growth and projects to take away volumes in general. So, I see it more in that macro term, not in a very shortsighted of what’s going to happen the next six months or eight months.

Abhi Rajendran - Credit Suisse

Okay, got it. And then just a question on Utica, can you maybe touch a little bit on your updated thoughts on where Utica processing volumes could potentially go longer term? I know you have talked about maybe 1.2 Bcf a day of potential or maybe even north of that, but any updated color there would be helpful?

Bob Purgason

I would say, we are still at where we were when we announced our new Utica project and growing our capacity to our commitments there of 1.1 of capacity. We obviously have a little bit more flex there. The producers continue to speak highly about their well results and we are expecting to get to right where we have announced with time.

Mike Stice

And I think you and I have talked about this before, Abhi, but those facilities, which are nameplate capacity at 1 Bcf a day, were initially designed for a GPM handling of around 7 gallons per thousand cubic feet. And we are seeing results to-date so far around the 5.5 GPM, which means that that nameplate capacity is well equipped to do 1.1 to 1.2 Bcf a day of throughput. Now, there is some interesting news that if you are paying attention to some of the producer announcements, there are starting to be some exciting path forward on the oil window, which obviously we had not contemplated in anything that we had. We don’t have dedication in the oil window, but to the extent that producers crack the code there, we are a natural service provider for that oil associated gas that’s with that oil. So, I think there is some excitement in the Utica that’s related to not only the success within the wet gas window, which continues, but also what appears to be early signs of cracking the code in the oil window.

Bob Purgason

Yes, I think just on a macro basis, I think it’s very clear that if there were doubters about the Utica, it’s clearly a significant basin and has legs and it’s going to be here for a long time.

Abhi Rajendran - Credit Suisse

Got it. That’s very helpful. And just another quick housekeeping question, so in the first quarter, you are reporting I think the recent compression acquisition. Are these results just kind of embedded in the segments or is it showing up in the EBITDA from unconsolidated affiliates or just any color there would be helpful?

Dave Shiels

Yes, Abhi, this is Dave. They are embedded in the segments.

Abhi Rajendran - Credit Suisse

Okay. Thanks very much.

Dave Shiels

So, yes, as we discussed the compression acquisition is in-sourcing if you will of our largest cost and you will see a cost reduction embedded in the segments from that deal.

Abhi Rajendran - Credit Suisse

Got it. Thank you very much.

Operator

And we will take our next question from Jeff Birnbaum, UBS.

Jeff Birnbaum - UBS

Good morning, everyone.

Mike Stice

Hi Jeff.

Dave Shiels

Hi, Jeff.

Jeff Birnbaum - UBS

So, to the extent you guys can comment just on the merger proposal, is there any color you can give just on the areas that you think the conflicts committee is most focused on in terms of its diligence, whether it’s the terms, deal precedence whether it reflects Access’ long-term internal plans or what have you some combination thereof?

Mike Stice

Jeff, I really can’t – I can’t comment specifically on the question that you are asking. But I think it’s important to recognize that both conflict committees are very well engaged and have got the appropriate financial and legal advisors. And I have a lot of confidence in the process. And all I can tell you is that I think all of us need to take confidence from that process. And yet I am not at liberty to share with you the relative merits of the proposal or of the combination of the two organizations at this time.

Jeff Birnbaum - UBS

Okay, fair enough, fair enough. Just operationally, what drove the quarter-over-quarter decline in throughput in the Niobrara? Were there any obstacles or hurdles there this quarter?

Mike Stice

No. I think what you are seeing is a little bit of noise. We actually deliver our gas on the tail end of the plant to another midstream partner’s processing facilities. There were some ups and downs on the takeaway, but it is not indicative of any kind of upstream issue or frankly gathering or compression issue in our part, but you are going to see quite a bit of noise in the Niobrara as we get the processing plant up and running. That area is short processing and you are not really going to see a clear picture of what the capability of Niobrara is until we are up and running in the fourth quarter with the processing capability that we own and control.

Jeff Birnbaum - UBS

Okay. So, maybe some continued choppiness there until Bucking Horse comes online in the fourth?

Dave Shiels

Yes.

Jeff Birnbaum - UBS

Okay. And then one last one from me, you added about 40 miles of pipe in the quarter in the Eagle Ford and volumes were up nicely quarter-over-quarter. I think that you highlighted at the end of April that you were running a little north of 300, I think it came in at 293 for the quarter. So, is there any other color you can give on the Eagle Ford or the updated WOPL count or how you see your ability to kind of reduce that number through the rest of the year?

Bob Purgason

Yes. Currently, we are continuing to build as you noted and we have the results from the first quarter drilling that are starting to come on. So, you are going to continue to see a slight volume build in the Eagle Ford, but given it’s oil-focused drilling, it’s not going to have kind of a huge uptick that you see in our other areas. Still seeing an increase in rigs deployed in the Eagle Ford, so it’s on a good growth trajectory, but nothing that’s going to hugely move the needle.

Mike Stice

And it’s like all the oil associated plays, the volumes themselves may not be the meaningful contribution, but they still are going to make a meaningful contribution to EBITDA as we continue to grow out that business. We are in a role there to kind of get the gas out of the way of the oil, okay. And that’s an important distinction versus what we do in the Utica or any of the dry gas basins. And so, profitability is driven by all the extended services we provide, removing the sulfur from the gas and getting the low pressure gas out at such a low pressure that the oil production is not impaired.

Jeff Birnbaum - UBS

Okay. I mean, are the SIMOPS issues you are seeing over the winter, is that pretty much done at this point though?

Mike Stice

I think you will see continued SIMOPS. They definitely are looking at multi-well pad kind of development. And so from time-to-time, the producers are going to return to those pads and then you will have SIMOPS type of issues, but the significant one that we reported on in the first quarter I believe is behind us.

Bob Purgason

Yes. I would just note our daily run rate today is back up over where we were at quarter end volumes. So, we are just moving along forward and you will see ups and downs as Mike said as we bring new pads on.

Jeff Birnbaum - UBS

Okay. Thanks very much guys.

Operator

We will take our next question from Darren Horowitz with Raymond James.

Darren Horowitz - Raymond James

Good morning, guys.

Mike Stice

Good morning, Darren.

Darren Horowitz - Raymond James

Good morning. Bob, I appreciate the color on what’s going with Marcellus volume growth and waiting on compression additions, but I am curious with regard to kind of the continued volatility that we are seeing in Northeast hub differentials. As you guys are talking to producers, how much of a push is there to hit markets and possibly clear like Chicago or Gulf Coast or even get through TCO and kind of stay away from Dominion South and (indiscernible) and TETCO M2 pricing when you start thinking about basis to NYMEX? I mean, has there been kind of a mindset shift amongst producers with regard to re-routing volumes that might create more infrastructure opportunity for you guys or how do we think about that?

Bob Purgason

Well, I think the way to think about it is the producers are trying to find every little nook and cranny that they can shove gas into and will continue to do that particularly in a volatile spot market like today. But we all have to be mindful that until new infrastructure gets built, until projects like Constitution get cleared by the New York authorities and we have new pipe in the ground, we are going to have a hard time seeing big growth out of the basin. So yes, people are tucking in every little bit of gas they can and by the way they are having to go head to head with Utica producers as those volumes ramp. So it’s the market at work. But what we really need is new pipe in the ground and that’s what we will continue to focus on working with our producers to get them to the right new big projects to help them grow their volumes.

Mike Stice

Darren, I would add that the point that you are making is a valid one about what we are facing with differentials there. And you have to acknowledge the fact that it hasn’t been a big air-conditioning load winter, gas prices have started to wane there, but we shouldn’t lose sight of the significant potential of this unconventional basin both Marcellus, Utica Wet, Utica Dry, and its proximity to the demand area. My anticipation is that you are going to see as we close in on winter producers who will continue to develop their gas so they can be prepared for a winter of sorts. This is regionally advantaged gas. And so even though I think today it’s difficult to find where to tuck the gas away as Bob puts it, they have to be thinking about what the market is going to look like six months out.

Darren Horowitz - Raymond James

Right. Well, I am thinking about it more from an incremental infrastructure opportunity for you guys especially with Marcellus North dry volumes, because if the goal is to when you start thinking about basis to NYMEX if the goal is to get away from the (indiscernible) pricing or even Dominion South pricing and that’s got to be – it should be more beneficial for you guys to maybe add some more takeaway capacity to the Chicago market or possibly even get those molecules down to the Gulf Coast, I mean it’s – there is no doubt there is a significant amount of production waiting on infrastructure, but from an economic perspective when producers are thinking about netbacks, I would imagine that creates even more opportunity for you in the Marcellus North, no?

Mike Stice

I agree, but keep in mind that we are highly focused on the unregulated piece, about I would say two-thirds of the infrastructure requirement you are speaking about is in the Interstate pipeline area, but you are right there is still opportunity for us to make new connections to new pipes, put compression in different places so that we can enhance the takeaway out of the basin for our producer customers. So your thesis is right. I think the opportunity lies mostly with the Interstate pipes as they connect to the Florida market, backward haul into Chicago, or even potentially get into Cove Point for an export market.

Darren Horowitz - Raymond James

Okay. And then last question for me just if I could quickly get your thoughts on Niobrara midstream growth and I realize your guidance as it currently sits is about $300 million of investment by 2015, but recently we have heard some producers talk about shifting additional rigs to the area, so seemingly more CapEx drill bit and I am just thinking that there could be a pretty meaningful upside case to the scale and scope of GMP in the area and I am wondering how you guys think about that both in terms of timing and capital allocation.

Bob Purgason

So Darren, I think that when you hear Niobrara, it is a huge geographic area, I mean it runs from the Colorado early Niobrara pieces all the way up into the Powder River and we are in that central area. We think we got a great footprint captured. And I have said our key producer there, Chesapeake continues to be focused and interested in it. So we are going to be following their development and I think you will see good growth there. But all of that Niobrara is not in our footprint that’s announced in terms of the total growth that you are hearing across the industry.

Mike Stice

But your comment on upside is a valid one. The way I think about that region it is really five zones with the focus so far on Frontier, Parkman and Sussex. And the concentration of activity that we anticipate coming out of the transaction that you saw announced between RKI and Chesapeake is going to be right in our backyard. And so we are excited about that. We think that we are on the right track to get our 120 million a day processing facility up and running and get the off take capabilities. But there is no doubt, there is upside potential as that development further delineates. We are hearing good news from Chesapeake around reducing their costs and having better success at the unconventional development. And so I think it’s an exciting play and I think people are going to have to pay attention to it. From a scale standpoint, it’s not Marcellus, it’s not Utica, but it is an extremely attractive play.

Darren Horowitz - Raymond James

Thank you.

Bob Purgason

Thanks, Darren.

Operator

And we will take our next question from TJ Schultz, RBC.

TJ Schultz - RBC

Hey, guys. Good morning. At the Analyst Day, you all talked quite a bit about looking at bolt-ons, I understand now you are in a bit of limbo with the conflicts committee on the MLP combination, but just any update you have on how active you remain in looking at bolt-on opportunities and just your general view on the acquisition market?

Bob Purgason

Yes. TJ let me just kind of start here and say that we are very focused on continued execution on our plans and that the merger activity is not slowing down anything that we are doing in attracting and chasing the bolt-on opportunities. In fact, we are spending lots of time on the road working with folks to get those deals closed. So, don’t be concerned that we are taking our eye off the ball with all this merger conversation. We are very focused on executing on the existing plan and that continues to come from a growth in these bolt-on projects.

Mike Stice

So, business as usual and no change to CapEx guidance.

TJ Schultz - RBC

Okay, fair enough. The Utica Dry I know you guys had indicated this was an area, where your cap spend could probably grow. Do you just have a feel yet kind of based on what you are seeing from producers for the level of capital investment that could support for you all?

Bob Purgason

Well, that is really again an out-year question. And I think we have already spoken to kind of the macro side of what’s going on in the Northeast. I really do feel like we need some more market development, power generation development, these takeaway pipes to show us the way to demand before we are going to see a big pickup activity. Even those wells are very strong, very economical and very competitive in U.S. returns we need a place to put the gas before we see I think a big focus on the major development of that acreage.

Mike Stice

And TJ, I mentioned last time, so this is not news, but I think there is another 200 million a day plant out there for us as we contemplate that upside. So, today, we are talking about contractually the 1 Bcf a day. I think we will get to the contractual nameplate of 1.2 Bcf a day, not exactly sure where that will come from as yet, but that’s the kind of direction I have given people when I think about the potential in the Utica over the next three years.

TJ Schultz - RBC

Okay, thanks.

Bob Purgason

Thanks, TJ.

Operator

And we will take our next question from Sharon Lui, Wells Fargo.

Sharon Lui - Wells Fargo

Hi, good morning.

Mike Stice

Good morning, Sharon.

Sharon Lui - Wells Fargo

Hi. So, you indicated that your capital budget hasn’t changed, but maybe if you could provide some color on how you are managing I guess the CapEx process in the Northeast given the overlap with Williams and if there is any current opportunities to I guess divert some volumes and kind of optimize the combined infrastructure in that region before the merger occurs?

Mike Stice

So, let me comment to the process and then I will ask Bob to elaborate. We are actually operating as standalone organizations working within our own remit. So, there is not a conversation consolidating these things. We are actually spending time understanding the marketplace and trying to capture business. In some cases, we are competitors. And so at this point, we are not are engaged in the kind of conversation I think you are alluding to. From my standpoint, when I look at the Northeast and I highlight the overlap that you describe, there is definitely going to be some opportunity, but we have not engaged in that until a conversation that might take place post merger.

Sharon Lui - Wells Fargo

Okay.

Bob Purgason

Yes. I mean, Sharon, we still have lots of activity going as John continues to build out the Marcellus and we are very optimistic about the opportunities going forward on a pre- or post-merger basis.

Sharon Lui - Wells Fargo

Okay. And I guess just some housekeeping items, the MVC estimate went up slightly from last quarter. Is that just primarily the decline rates in the Barnett or what was the change I guess in your assumptions versus the first quarter?

Dave Shiels

Yes. Sharon, this is Dave. It’s really just fine tuning. So, as we get further into the year Chesapeake runs either one or two rigs and whether they are running one or two and how long they are running two versus one. It just allows us to fine tune that estimate for the year. So it’s nothing more than that.

Sharon Lui - Wells Fargo

Okay. And then I guess in terms of the GIP transaction with Williams, do you know if that resulted in a change in control or technical termination of the partnership and any tax implications?

Dave Shiels

No, there is no tax implications. There will be some change in control of events as it relates to equity vesting that will be a financial impact in the third quarter of 2014.

Sharon Lui - Wells Fargo

Great, thank you.

Bob Purgason

Thanks, Sharon.

Mike Stice

Take care, Sharon.

Operator

And we will take our question from James Jampel, HITE.

James Jampel - HITE

Thanks for taking the call. Noticed on your Investor Relations website that you have posted a brand new presentation as of yesterday, that though it mentions the takeover of the GP by Williams 100%, it makes no mention of the potential WPZ transaction. Should we be looking at a potential investment in ACMP completely on a standalone basis? Is that the intent when you come out with a presentation with like that?

Mike Stice

Well, we can’t advise you obviously on where your investment ought to be made, but I think the important point is the only transaction that has taken place is the acquisition of GIP’s interest in both their LP units in ACMP and their 50% ownership in the GP. The proposed merger is just that it’s proposed and that’s why we haven’t commented or updated our decks to contemplate that. The process, which I think many people are just now coming to understand is that these conflict committees have to go and negotiate on behalf of our unitholders. And at the time, when we are informed as to what that transaction looks like, then and only then would we be at a liberty to comment.

James Jampel - HITE

So, we should then as of now look at a potential investment using the existing investor presentation and not really be thinking about the WPZ merger going through when we look at the investment merits?

Dave Shiels

So, James, we are still a standalone entity and that’s how we will represent ourselves until something changes.

James Jampel - HITE

Okay, thank you.

Mike Stice - Chief Executive Officer

Thank you. Okay. Let me just close out with some closing remarks. I think I appreciate everyone this morning and all their questions. In summary, we are really pleased to report on another outstanding quarter beating both external consensus and our internal budget. The steady increase in volumes, EBITDA and cash flow continue to reinforce the strength of our business model and our execution capabilities and we look forward to capitalizing on our expanded relationship with Williams at the GP level and are confident that the future of our business remains very, very bright. So with that, I thank you for your time and we look forward to next quarter.

Bob Purgason - Chief Operating Officer

Thanks, everybody.

Operator

This concludes today’s conference. Thank you for your participation.

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