Williams Companies' CEO Discusses Q4 2011 Results - Earnings Call Transcript

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Williams Companies (NYSE:WMB)

Q4 2011 Earnings Call

February 23, 2012 9:30 am ET

Executives

Travis N. Campbell - Head of Investor Relations

Alan S. Armstrong - Chief Executive Officer, President, Director, President of Midstream Gathering & Processing, Chairman of Williams Partners GP LLC and Chief Executive Officer of Williams Partners GP LLC

Rory Miller - Senior Vice President of Midstream

Randall L. Barnard - Senior Vice President of Gas Pipeline

Donald R. Chappel - Chief Financial Officer and Senior Vice President

Analysts

Craig Shere - Tuohy Brothers Investment Research, Inc.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Brad Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Travis N. Campbell

Good day, everyone. I'm Travis Campbell, and I head up the Investor Relations team here at Williams. Before I turn it over to Alan Armstrong, let me go through a few housekeeping items. Today, we put on our website, williams.com, the slides that Alan will shortly be discussing. You can download those slides for viewing and a podcast of his remarks, if you desire. As always, we thank you for your interest in the company. In a minute, Alan Armstrong, our President and CEO, will review the slides that we have this quarter. Tomorrow, our business units heads and Don Chappel will be available to respond to questions on our analyst call in the morning at 9:30 Eastern Time.

You'll notice that all the results and guidance in today's slides, including the EPS numbers, are presented excluding WPX. Be aware that this is different from the EPS guidance given on the third quarter slides. Don't let this confuse you because numbers on the Street have included the former E&P company and results presented today do not.

At the beginning of the slide deck are the forward-looking statements which are included on Slide #2 and Slide #3. These are important and integral to all of our remarks. You should review those. Also included are various non-GAAP numbers that have been reconciled back to generally accepted accounting principles. Those reconciliation schedules are available and follow the presentation.

So with that, I'll turn it over to Alan.

Alan S. Armstrong

Great. Thank you, Travis, and good morning, everyone. A lot of great information to go through here this morning and glad we've got the context set clear here now . Some of the things I'll be hitting on this morning here, first of all, talking about our 2011 performance, and then I'll work through some of the rapidly expanding growth capital that we've got out there and a lot of the projects that are behind that capital expansion. And then I will move to the guidance for 2012 and '13, along with an updated commodity price deck that reflects our latest thinking about the commodities environment that we look forward to in '12 and '13.

First of all though, before we get into that, I want to remind you, certainly, we could not be more excited about Williams going forward and the way we're positioned in what we think are definitely the right assets, great markets and we certainly are excited about the strategy and how that is performing for us. Also, our MLP structure continues to fuel our dividend growth at WMB and allows us to continue to raise capital in a very cost-efficient manner for Williams shareholders and our high-dividend payout expect an increase every quarter now as we go forward rather than either annual or semiannually. We now have laid out our policy to increase that and are going to be increasing that at a rate of about 7/8 of $0.01. And that equates to a December '11 number versus a December '12, will give us a 14% increase in our annual dividend growth from '11 versus '12.

So we continue to be very excited about our ability to grow the dividend. We think it's extremely transparent where that growth is coming from. And as we continue to add more and more capital projects to this, we expect to even be able to expand that further. We continue to be very committed to our investment grade credit as well.

Okay, moving on here to Slide 5. Great financial performance for 2011, a 37% growth in our adjusted net income. That was $734 million versus $537 million from our continuing ops. Very strong business performance, growing at a clip of about 27% on our adjusted segment profit. And that was driven by a 24% increase in Williams Partners and a 67% increase in our Midstream Canada and olefins.

Some of the drivers there, certainly, in the fee-based business, we grew our fee-based revenues by 12% in Williams Partners and a lot of that volume growth is coming from our Marcellus business, as well as our Deepwater business. The higher NGL frac spreads also were a driver for 2011, and our NGL production volumes were up. But as some of our contracts continue to roll into a fee-based business, our NGL equity volumes were flat. So our business is growing but more and more of our revenues are coming from fee-based business.

We certainly, on the Deepwater Gulf business, as I mentioned, not only did we see growth in revenues for 2011, but we also signed up 2 very significant growth projects that will come on in 2014 and beyond, and that is the Keathley Canyon project and as well, the GulfStar FPS. And I'll speak a little bit more about that later.

Our Gas Pipelines continued to grow as well. And really, the big projects for the gas pipelines, there was actually 4 new major expansions that came on in just during 2011. And most of these projects started up in the end of -- latter part of the year, and about $67 million in increased revenues from those projects.

And then again in the Midstream Canada and olefins, higher sales prices really drove a lot of that, as well as increased volumes. But I think probably most important to note is that it wasn't just priced just that the market offered us, but our butane/butylene splitter that we installed in -- towards the last half of 2010 really provided tremendous margin upgrade for us in the 2011 timeframe. So a very high-return project as we continue to optimize the mix that's coming off the oil sands off gas stream. So we continue to be very excited about that. And as well, we had better margins in our Geismar ethylene business and somewhat impacted by some downtime that we had in the fourth quarter for Geismar.

So here on Slide 6, we show the visibility to growth across all of our operating areas. And really important changes going on here. So I'll draw your attention to this. First of all, 2011 has been dropped from this. Prior, you would have seen 2011 included here, so you really have to look at things on an annualized basis to get to a more comparative viewpoint. So for instance, in guidance, we went from 3 years now to 2 years and on an annual average basis, you see that increase being up 47% on an annual average basis, moving from $1.7 billion to $2.5 billion here in the fourth quarter. And so some of the drivers, of course, for this, and a lot of this is weighted towards 2012, but some of the drivers here, primarily, the Laser acquisition and then some of the expansion cap around the Laser acquisition, as well as a small portion for Constitution. Both of those additions are included in that new Marcellus slice.

Moving to the middle slice then, you can see now we're going from what was 6 years, 2011 through 2016, is now 5 years. And the midpoint on that -- or sorry, the annual average at midpoint on that was about -- a little over $1.5 billion. And before now, that is $2.5 billion and a 56% increase on the average annual growth capital spending for that period. The drivers on this, a lot of which is on the Eastern Seaboard, which is a number of small projects that are in-guidance quality projects, but the capital push is into 2014. So it's out of that guidance period that's shown to the left. As well as a pretty significant increase on Constitution, again, that's shown in the Marcellus slide. And then additionally, we've got some increases in the Deepwater and some increases in the area of our Midstream Canada and olefins, particularly some projects that we have serve, some pet chem infrastructure needs for third parties. We haven't disclosed those projects yet but are looking forward to doing that yet in the very near future.

Moving over to the larger pie. Here, you can see this moves from $2.6 billion up to $4.2 billion on an annual average basis or a 62% increase. A number of large drivers here, but I'll tell you, probably the biggest single theme to this is the fact that we're seeing so much increase for demand on Transco along the Eastern Seaboard and the markets there. So our largest increase here is in the Eastern Seaboard pie that you can see there, and you can see Marcellus keeping pace throughout this as well. So a lot of great growth going on. And we just continue to see the demand for our infrastructure continue to drive our forecast for growth opportunities out in front of us. And frankly, we're going to be in a nice position to be able to prioritize to the very best capital opportunities that we have available for us looking forward.

Moving on to Slide 7, as we mentioned in our capital explanation and the opportunities ahead of us, the Marcellus area continues to be an area we're extremely excited about and continue to grow a very strong presence in the Marcellus, and particularly, in the Northeast Pennsylvania area, we are making progress in growing out the infrastructure there, really leveraging off of a resource base there in the Susquehanna County area and our key customers there, Cabot, WPX Energy and Carrizo. And we are really excited about how that's coming together. We've got 2 new things to announce. Certainly we closed the Laser pipeline that we had mentioned earlier. But as of yesterday, we also disclosed the Constitution Pipeline project which will provide even greater access for our customers in this area into new expanding markets as we connect into both the Iroquois pipeline and a favorable location on Tennessee Gas Pipeline in New York. And Cabot is the anchor customer for that project, and we will be moving ahead with that project. The size and total capital on that project will be somewhat dependent on the amount of interest we have from other parties, but we are prepared to move ahead with the commitment that we have from Cabot for that project. So very excited about this. And really, this area, we believe by 2015, will have about 3 Bcf per day. Gathering capacity matched up with 3 Bcf a day of takeaway capacity from the area as well. And so this is exactly right onto our strategy of providing large-scale infrastructure solutions to producers in the right locations. And certainly, we think Susquehanna County in the Marcellus is the right location.

Moving on to Slide 8. Here, you can see another exciting project that's leveraging off the growth in the Marcellus Shale as well. And this project is really aimed at serving both producers in Southwestern Pennsylvania and Northern West Virginia, and as well, potentially Utica Shale shippers as well. And so -- but the really unique thing about this project is it not only provides producers with access into these markets, it also provides these great, growing markets on Transco in zone 6, 5, 4 and even 3, it provides these folks with access to these growing reserve base as well with actual firm, backhaul capacity on Transco. And so Transco, as you know, continues to -- has been continuing to expand with moving supplies from the South to the North, but those expansions have been coming in such a rapid manner that we really -- or welcome a new supply source from the north to be able to expand our capabilities to serve these markets even faster. So this is not just a supply-based project. It also is providing a great opportunity for our markets along the Transco system as well. And you can see, we would expect this to be in service as early as December of 2014, and we do have an open season out there right now and look to conclude that on April 2. And we'll know a little more about the details of this project when that's concluded.

Now moving onto Slide 9, in the Keathley Canyon Connector, and we've talked about this project. Fortunately, I won't spend a lot of time here. But this is a 215-mile project with a gathering capacity of 400 million a day. And these contracts were executed in late 2011, another great accomplishment that we had in 2011. This project will be expected to be in service in mid-year 2014. And I point that out because despite the great growth that we continue to have throughout our guidance period, a lot of these projects that I'm talking about will -- do not come into service in that timeframe and will continue to fuel our growth beyond the guidance period.

Moving on to Slide 10, our GulfStar FPS, another project that we contracted during 2011, and you can see a lot of details offered for you here on the slide. This project is going extremely well to date and a lot of the major contracts for the fabrication and installation of both the spar and the pipelines that will tie it into our existing pipeline system have been executed, and are at or below where we expected the estimates to come in for this project. So getting off to a great start on this project and really excited about the degree of interest that we're getting from other producers in the Deepwater as well as they're starting to see the reality of this project come together and the speed at which this product can be deployed.

Moving on to Slide 11, moving out West now. The West continues to provide opportunity to us and the Parachute Plant is a great example. It's a 350 million a day cryogenic train, almost completely fee-based project, and it will be in service in 2014. Major customer on this is WPX Energy, and this will really help them lift their cash returns on their drilling operations out there as right now, we continue to be a little bit short on processing capacity in that area. So very excited about what's going on out there. Another thing that's not mentioned here is the Overland Pass Pipeline, and that pipeline, that's the NGL pipeline that comes out of the Rockies and into the Mid-continent area. And that capacity is going to be increased up to 255,000 barrels per day to accommodate One Oak's new volumes coming out of the Bakken Shale, as well as Parachute TXP1 plant as well.

Moving on to Slide 12. And you can see here great visibility along our gas pipeline system here and a number of projects that are mentioned. And I'll tell you that the drivers for expansion on Transco in particularly is largely driven by power generation load. And right now, we are pursuing projects. These aren't speculative matters. These are actual projects we are pursuing right now that are requiring an excess of 3 Bcf a day of pipeline capacity. And that's about $2.5 billion of pipeline investment to accomplish that. So that's outside of some of the things that we most recently announced. And as well, I will tell you, in a broader study that we looked at, about 30 gigawatts of new power generation load we expect within about 50-mile radius of the Transco pipeline. So you've been hearing a lot about this for the last couple of years from the industry pundits, but we are actually seeing it come to -- into very tangible projects for Transco, and we expect to be able to grow both our capital investments and our revenues from our Transco business here pretty rapidly over the next 4 or 5 years.

Okay, now moving onto Slide 13 into Canada in our Midstream Canada and olefins area. Our Boreal pipeline is a great example of how well our project teams are executing up there. And this is a project that's being funded out of our international cash reserves, so it's not drawing down on any of our ability to provide dividend. And as we've mentioned before, a lot -- all of this Canadian business today is really being held in reserve from a dividend standpoint. We're not using any of these cash flows. But the point, really, of this slide is to show we continue to be able to execute our projects up here very well. In August of 2010, we brought on the BB splitter, and we brought that in below budget and on time. And also now, in Boreal pipeline, expect to be able to say that as well, and we're expecting that to come on in May or June of this year, and that will be slightly ahead of our schedule for that project. And as well, we now are forecasting that project to come in under the original budgeted amount. So great execution by our teams up here, and that's a good thing because we have a lot of remaining expansion projects to build with the next one that will come online will be the expansion for NOVA of our ability to extract the ethane and ethylene out of the gas streams up here as well. And that will come on in the first part of 2013.

And as you can see here on Slide 14, we have a little more detail on that particular project. This is the NOVA Chemicals project, and we basically have contracted with NOVA to extract the ethane and ethylene out of the existing gas streams up there for them. And particularly, the first amount of work that's going on is at the Suncor facility. And this involves both some upgrades on the extraction facility, as well as some upgrades on the fractionator down at our Redwater facility. And as you can see here, that project is -- you can see that range of that budget moving down as well. So making great progress on all of our projects up here.

The next project here on Slide 15 is our Geismar plant expansion, very excited about what this offers to us from a strategic standpoint. And we've got a very low cost expansion, and we think we're going to be well ahead of the market on most of the other expansions that are coming on in the ethylene cracking space. And we think this is going to be a good thing for Williams relative to the choppiness that we expect to see in terms of ethane volumes coming up in 2013. And we think this project is extremely well-timed in terms of being able to capture the spread between gas and ethylene. And so from a Williams standpoint, we are going to be rather insensitive to the spread between gas to ethane or ethane to ethylene because we'll perfectly balanced here between our ethane supplies coming out of WPZ and our ethane consumption in Midstream Canada and olefins. And so things are going well on this project as well, and we've got a really talented staff and a great operating team there at Geismar, gives us a lot of confidence in our ability to bring this project in on-time and on budget as well.

Now we're going to move to Slide 16 here and talk about our perspective on the industry fundamentals that are driving our NGL margins and our olefins margins as well. So first of all, I'm going to kind of go through the general perspective that we have, and then I'll come back and talk about the specific changes that we've made to our pricing guidance. First of all, the crude-to-gas ratio continues to be at record high levels, and we certainly expect to see that in both '12, and to a slightly lesser degree, in '13, as we expect gas prices to rebound a little bit from '12 even though we don't expect dramatic movement.

The NGL-to-crude ratio however, is really continuing to soften. We're certainly seeing that here in February and in March, and we expect to see that continue through the second quarter of '12. We may see some rebound, and hope to see some rebound in the second half of '12, as a lot of the ethylene cracking capacity that is out-of-service right now, some of that down time is related to expansion on some of those ethylene crackers. And so we expect to see ethane demand towards the second half of '12 rebound. And then as we move into '13, though, we expect to see some of the new processing and NGL transport and fractionation infrastructure start to come into service in '13. And we -- so we expect to see supplies getting a bit longer in '13 and expect to see some dampening of the NGL-to-crude ratio further into 2013.

The natural gas-to-ethylene spread, really, is the thing you need to stay tuned about relative to Williams because we really have that entire space covered with our ethylene cracker at Geismar. And so we really aren't all that sensitive at the WMB level between gas-to-ethane or ethane-to-ethylene spread. In fact, in 2013 and mid-2013, when our ethylene cracker comes into service, our expansion there comes into service, we'll be almost perfectly balanced between our ethane production at Geismar -- or sorry, our ethane production in our processing business and our ethane consumption at Geismar. A very positive thing that we're seeing out of this commodity price environment that we're in is a tremendous demand for infrastructure on the market side on natural gas, particularly on Transco pipeline, and it's driving a lot of demand for power generation loads. But as well, this big spread that we continue to see between gas and crude oil-based products is continuing to demand infrastructure that helps us arbitrage that tremendous spread between domestic natural gas and world crude oil prices. And so it takes a lot of infrastructure to close that arbitrage, and we certainly have seen a lot of demand to get at that.

So what this boils down to in terms of specifics for us, first of all, in 2012, we previously had $82.50 oil, WTI Oil, in our pricing environment. We're seeing that go to $100 here in 2012, and we're taking gas down from what was $4.25 at Henry Hub down to $3 in the period. That equates to a tremendous crude-to-gas ratio of 33.7. So -- and that's up from about 23 in 2011. However, the NGL-to-crude relationship, we really are expecting to diminish significantly, and we certainly have seen that, as I mentioned here in the first quarter. And in 2011, we saw that the 56%, previously in our guidance, we had a 58% NGL-to-crude relationship. We're taking that all the way down to 45%. So very conservative on our part, but reflective of a very warm winter for propane demand, and as well, this lack of demand we're seeing right now for ethane due to these ethylene crackers being out of service in the near term. So at the end of the day, we're taking our NGL margin down from $0.83 in 2011 down to $0.78 at the midpoint of our guidance. And on the frac spread side, that goes from $0.91 down to $0.83. So about 9% on the frac spread for 2012.

Looking at 2013 then, pretty similar viewpoint, moving a $100 crude oil, and we also are seeing gas go from what was $4.75 down to $3.75. And that gets us to a crude-to-gas ratio of about 27 in 2013. And we're expecting the NGL-to-crude relationship to be 45% during this period. Additionally, our NGL margin is dropping again relative to 2011, $0.83. We're seeing it go down to $0.70 for that margin. So certainly, very conservative outlook here on NGL margins. But as you'll see, despite that conservative outlook, we continue to be able to grow the cash flows of this business and drive our dividend very substantially. And I really think that's the takeaway. We certainly hope that folks are cautious as they look at our growth against some of our peers' growth because we probably have one of the more conservative perspectives out here on this pricing level. And so, despite, though, this conservative picture, a lot of growth continuing in our business as you'll see on our guidance of the next page.

Moving on to Slide 17. This really just lays out for you all of the adjusted segment profit, the changes that we expect the capital expenditure, the dividends and the EPS. And as you can see, a very nice pattern, with up into the right here in terms of adjusted segment profit. Our dividend, certainly strong increases there, and our EPS adjusted earnings. So the capital expenditure, as you can see, is very volatile over this period. Really, this is driven by, first, the Laser acquisition in 2012, and as well some dollars that we pushed from '11 into '12 in our capital -- in growth capital buckets. So 2013, you can see that going down. I would tell you, given the amount of demand that we've got for project and so forth, I would be surprised if we continue to see 2013 held so low as we get a little closer to that time and some of the projects we're working on become more of a reality. So, great picture here in terms of the continued growth in our business. And I'll remind you -- and I think this is extremely important, that when you're comparing our growth in these businesses, you recognize how conservative our pricing forecast is relative to what we've seen out there in the market from others. And despite that very conservative picture, we continue to see growth that looks like this. If we were to see this normalize with our -- from our 2011 margins, as a lot of folks are showing, you'd see a much higher growth rate in here. But we are very comfortable with the picture that we have here and our ability to continue to increase the dividend even over a more conservative pricing environment.

So moving to our last slide here on Slide 18. As we mentioned before, we certainly have transformed Williams. We're very excited about the growth prospects that we have in the business and the demand for our infrastructure services as they continue. And we certainly very much appreciate the model that we have between Williams and WPZ and the ability to increase our dividends that comes from that.

And so with that, thank you for joining us this morning, and we look forward to being able to talk you further about our growth.

Operator

Good day, everyone, and welcome to the Williams Companies Fourth Quarter 2011 Earnings Release Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Travis Campbell, Head of Investor Relations. Please go ahead, sir.

Travis N. Campbell

Thank you, and good morning, everybody. Welcome to the year-end 2011 call. As always, thanks for your interest in our company. As you no doubt know, we released our results yesterday afternoon after the market closed. Also yesterday, Alan, using a few slides, had some commentary about the results, our new guidance and growth opportunities. That audio commentary and the slides are available on our website. So on the website, williams.com, you should be able to find a number of things that were posted yesterday afternoon. The earnings presentation with the audio commentary by Alan, our normal data book with the usual information we make available each quarter, the press release of our results and our analyst package.

As usual, because we had the commentary yesterday, this morning's call should be fairly brief, and we'll get very quickly to your questions. In a minute, Alan will -- Alan Armstrong, our President and CEO, will make some brief comments, after which we'll open the lines for questions.

Be aware, as always, all of our business unit heads are here, and they'll be available to respond to any questions after Alan's remarks. With me here this morning are Rory Miller, who oversees Midstream; and Randy Barnard, who heads up our Gas Pipelines; as well as Don Chappel, our CFO.

On yesterday's presentation and in the data book, there is a disclaimer on forward-looking statements. This is important and integral to our company. You should review those. Also, there are non-GAAP numbers included in the various presentations. These have been reconciled back to generally accepted accounting principles. Those reconciliation schedules are also available.

So with that, I'll turn it over to Alan.

Alan S. Armstrong

Great. Good morning, and thank you, Travis. First of all, we certainly had very noisy result from the EPS as we spun off WPX. But really boiling it down and looking at the continuing operations, you'll see that our adjusted segment profit versus our third quarter guidance came in right in between our midpoint and high that we've given you for a guidance there, so our continuing operation is performing very well in the fourth quarter and throughout 2011. As we look forward, a tremendous amount of new growth and you'll see that built in to both our guidance and capital, as well as our opportunity pipeline that we continue to project. And one of the -- probably the biggest area of change that we had in that opportunity pipeline was a large number of increases coming from our gas pipe segment as major expansions, particularly on Transco, and a little -- to a lesser degree, on Gulfstream, really start to present themselves as the industry and power generation industry look to take advantage of continued low natural gas prices. So very excited about the way we're positioned in that space, and our opportunity pipeline certainly demonstrates that.

On guidance, you'll note a raise in guidance for both '12 and '13, and this is an improvement in our adjusted segment profit plus DD&A of about $40 million and 12 at midpoint and $120 million in 2013. In '12, the drivers there are slightly higher NGL margins, the addition of Laser to our guidance, as well as some offsetting impact of lower volumes in some of our areas due to lower gas prices and our expectation of slow drilling in some of those areas. So overall, an improvement in '12, though. In '13, you'll see even lower NGL margins than we had previously in our guidance there, and I'll speak to that in just a moment. But those were -- are offset in '13 by higher ethylene margins in our MC&O areas, so a nice raise there for '13. And I think it really shows the strength of our portfolio, and a big part of that strength is the growth in fee-based revenues that we continue to see in '11, we're going to see in '12, and we certainly are going to start to see present itself in '13.

Speaking of commodity prices and our changes there, what you'll note there is very high crude-to-gas ratios reflecting kind of what we're seeing in the current market out there. We've got gas now at $3 for '12 and $3.75 for '13, and we've got crude holding steady at $100. However, despite that very high crude-to-gas ratio, much as we usually see when we see that ratio blow way out, we do not see the NGL components keeping pace with that big separation. And so you'll see a very low NGL-to-crude ratio in our forecast of about 45%. And that has us have our NGL margin declining from '11 through '13 of just a little over 15%. But as I said earlier, we are projecting our ethylene business, particularly in '13, starting to take advantage of those lower ethylene prices. So -- but despite what I would say is a very conservative outlook in the NGL margin space, we continue to show very strong cash flow growth and very bullish about the way our continued cash flows from both WPZ and our Midstream Canada and olefin segment is going. And I would just remind you, as you're looking out there amongst our peers, making sure you're looking at it on an apples-to-apples basis, we feel like we've got a pretty good insight into the commodity prices. But I think what's impressive is we've got continued nice strength in our growing cash flow despite a 15% decline in our NGL margin, and I think a lot of our peers would be hard-pressed to show that kind of resilience and strength in a lower price environment.

So with that, we will turn it over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we will go first to Craig Shere with Tuohy Brothers.

Craig Shere - Tuohy Brothers Investment Research, Inc.

A couple of quick questions. It looked like the Geismar olefin volumes were perhaps down a little sequentially in the fourth quarter. And I was wondering if you could discuss if that's accurate, what's driving that and prospects for the volume growth ahead of the expansion of the facility? And also, where you see potential weakness geographically in terms of gas processing and Midstream as producers pull back in this environment?

Rory Miller

I'll take that. This is Rory. We had a 10-day shutdown at Geismar. We had a problem with a missed pad there and that accounted for the lower volumes there in the fourth quarter. So that's something, obviously, that we're not planning for in '12, so you shouldn't put too much stock in that. Prospects for volume growth ahead of the expansion of the facility, I expect -- or I suspect that you're talking about the major 600-pound expansion that we've announced. We do have some furnace upgrades that are ongoing. Those are being done one at a time. And so we will see some very slow volume growth across the period as those furnaces are reconfigured and brought back up. But the big jump will come in '13 when we bring up the major expansion.

Craig Shere - Tuohy Brothers Investment Research, Inc.

Will we see some downtime ahead of that to prepare for that?

Rory Miller

Yes, we have a turnaround planned, and our intent is that we would coordinate the activity as much as possible to limit any additional downtime associated with the expansion.

Craig Shere - Tuohy Brothers Investment Research, Inc.

Great. And any slowdown geographically you could discuss in the Midstream area?

Rory Miller

Yes, yes. Good question there. I think any of the slowdowns that we're seeing, I think, we already have priced into our guidance. I'll just note that upfront. Out West, we're not seeing massive pullbacks of drilling, but we are seeing some moderation in the drilling out there. We've got one rig that we've just heard of. It's being laid down in Wamsutter, but everything else is still moving ahead. Generally speaking, say, from quarter-to-quarter, we're seeing a little softening in the drilling. But I guess, that -- one point I would make is if we do see fewer well connects for the year, we'll also see less well connect costs. So we think, at least, from a PZ standpoint, any slowdowns near-term ought to be DCF-neutral to PZ, and of course, that impacts WMB directly as we get those distributions.

Operator

And we'll go next to Sharon Lui with Wells Fargo.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Just wondering if you could talk about maybe the cash flow contribution from the Laser acquisition and how you anticipate the cash flow to ramp-up over time.

Rory Miller

Yes, the Laser system acquisition, which I'm sure you've heard, has closed, is being looked at as what I call an integrated system. I think we're, in fact, we're going to be disallowed from using that name shortly. But one of the big values from Laser is it's coming into our complex up there to be operated and run as part of an integrated, holistic system. And so we'll be referring to that area up there as the Susquehanna Supply Hub. The project was, I would say, was -- the purchase price was more like what you would typically see on acquisitions in the Midstream space. We're -- if you're looking at guidance just for PZ, that's probably going to contribute about $25 million of segment operating profit in '12 and about $50 million in '13. That's the net impact. There's a little other noise in there, but we see that as being a nice driver overall in terms of improving segment profit and a big help just in general to that overall complex in the area.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay, great. That's helpful. And I guess turning to the Constitution JV with Cabot, if you can maybe talk about the potential investment in terms of dollar costs and the expected returns for that project?

Randall L. Barnard

This is Randy Barnard. I'll be happy to answer that question. Sorry for my voice, it got a little froggy this morning. The stated investment for that project is around $700 million, actually $701 million, eight-eights if we build the 24-inch version. We've got an open season on that project. Now that may end up leading to upsizing on that project to 30-inch that would raise the capital by another $22 million or so. The joint venture between us and Cabot, us being Williams Partners, would be 75% owners. So that would be our share of the overall capital depending upon which version, the 24 or 30 inches built. Does that answer your questions?

Sharon Lui - Wells Fargo Securities, LLC, Research Division

And then maybe just the expected initial returns on that project?

Randall L. Barnard

Well, we haven't negotiated rates for the project. But they would be -- I would just say consistent with regulated pipeline returns.

Operator

And we will go next to Ted Durbin with Goldman Sachs.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Just thinking about the pace of the dividend raise here. It sounds like with what you're going to hit for 2012, you're going to be above your -- the midpoint of your range, the 12.5%. I'm just wondering if you're thinking you can hit the high end of the range, maybe now that you're adding more of the fee-based earnings from WPZ with Laser and some of the new pipeline projects, or are you still thinking the midpoint is a reasonable way to think about the raise?

Donald R. Chappel

Ted, this is Don Chappel. Again, we'll stand with the range we've put out but certainly, our bias is to target the high end of the range.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Okay. So the mix shift at -- I'm assuming PZ is going to be moving more fee-based here given that you are fairly call it conservative on your NGL margin. Does that change your thinking at all?

Donald R. Chappel

Right. I think we look at the whole portfolio and clearly, the fact that WPZ is building more and more fee-based business, gives us more confidence in support for distribution increases. So I think we're on the same page there in terms of -- we think the outlook is very strong. I think, as Alan said, the business prospects have never been better. So we're adding a lot of great assets. I think Rory spoke to Laser, and that's kind of the early innings for Laser. We think that '14 and beyond are even brighter.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Okay. And then just sticking with dividends, and I realize it's a little early to think about it, but we do have potential change in tax law here coming at the end of the year. I mean, how does that inform your thoughts about capital allocation, whether it's dividends, buybacks, things like that?

Donald R. Chappel

Well, I think it's way too soon to think that the tax law is can be changed. We certainly are mindful of the possibilities. We certainly are educating those that make those decisions, but I don't know that we want to speculate on what we might see or what we might do. But again, I think at this point, we think it's pretty low probability that anything happens.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Okay. The -- you mentioned a little bit about expecting stronger ethylene margins. Can you just talk about what you're expecting for '12 and '13 there? And then is it a function more of lower ethane prices, or is it just increases in ethylene prices or maybe a combination?

Donald R. Chappel

Well, I would say a couple things here. One, most of the driver in '13 from our previous guidance is lower ethane prices. And so that's a big chunk of that. For '12, I would just say the current experience that we have out there is that because there are outages and that's driving these -- on the cracker side that is driving some of the lower ethane prices. But it's also increasing ethylene prices because those crackers are out as well. So we're on both sides of that coin. And -- but I would say generally, most of the driver that we're seeing in a longer-term despite this kind of current period that we're in with high ethylene is really driven by lower ethane prices.

Operator

And we will go next to Bradley Olsen with Tudor Pickering.

Brad Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

I think my question is really kind of a follow-up to Ted's. It looked as though the NGL pricing that you have in the February slide deck has declined over 20% at the midpoint from the November NGL pricing. And at the same time, the bump up for segment margin in MC&O in 2013 seems relatively conservative. Is there any of the, I guess, ethane price decline that -- or anything about the contractual structures that you guys might have with ethane suppliers that would prevent you from realizing all of the favorable impact of a decline in spot ethane prices?

Rory Miller

I'll take that. This is Rory. If you look at '13 and focus on that, we're down about $0.11 on our ethane assumption and up about $0.04 on our ethylene, which is driving about a $50 million increase in segment profit there. That's kind of the long and short of it. I don't know if that's helpful but we...

Brad Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Yes, that's helpful. And then there's nothing in terms of contractual structures. It's reasonable to think about segment margin in the olefins business as really being determined by just -- by spot prices?

Rory Miller

Yes, I think the good news there is if -- and I'm not going to get into a lot of contractual detail on our offtake agreements, but right now, we have a pretty high percentage of our agreements that do have collars on them, and so we're not getting full exposure to that pure spot market margin, which today, is around EUR 40 -- maybe even a little more than GBP 0.40. Most of those are rolling off, and so we'll have contracting flexibility in '13. And we'll -- we haven't made those decisions yet, exactly how we're going to play that, but at the end of the day, you want exposure to that margin and you want certainty of takes. So that's kind of the trade-off there.

Brad Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay, great. And then I guess just as far as why the 2012 MC&O margin didn't move, that's more associated with the collars that you referred to?

Rory Miller

That's definitely part of it. We've got a much smaller percentage of our offtake that's purely exposed to that at spot margin without some kind of limiting collar.

Brad Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Great, and just one question on the Midstream side of things. As you think about the current low ethane price environment, when you think about some of your customers in the Piceance specifically, but in, let's say, kind of a variety of Rockies plays in the Green River and the Piceance where maybe you see anywhere from 1 to 3 gallons per Mcf on average so not extremely liquids rich, do you think of those rigs as being in danger of being laid down as you think of, perhaps, ethane prices on the Gulf Coast not being high enough to justify shipping ethane all the way from the Rockies down to the Gulf Coast and incurring those transportation costs versus just selling that, the BTU, locally as methane?

Rory Miller

Yes, well, it certainly doesn't help. The Rockies barrel does have a fairly decent percentage of ethane in it. But I think what I would say generally speaking, the lack or the slowdown in drilling that we expect to see, we've already got in our guidance. I think that impact has already been accounted for. I think the uptick or the strengthening that we're likely to see for ethane in the second half of '12 will help. And -- but I think generally speaking, we've got that impact and that effect already dialed into our guidance.

Brad Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And you don't think that will affect utilization on the new capacity on the Parachute Plant coming online in 2014 or kind of similar deep-cut processing facilities?

Rory Miller

I think that in the Piceance basin in general, there will be some drilling slowdown there. I think WPX, in particular, has already made some comments about that. The good news I think there is we do have some Mancos acreage under contract out there, and that's kind of where I see a lot of the backfill coming and some of the interest building out there. There's some rich gas windows and possibly even some crude oil Windows in the Mancos and Piceance. And if we do have any slowdown here in the front-end, I think we've got a chance to backfill that eventually with Mancos rich gas production.

Operator

And we will go next to Carl Kirst with BMO Capital Markets.

Carl L. Kirst - BMO Capital Markets U.S.

A lot of my questions had been hit, maybe just a few others if I could, though. And maybe, Randy, on the pipeline side, going back to Constitution, just noting that it's -- it looked like it was sort of an in-service date for early 2015, and we think a 120-mile pipe that could kind of be done in 1 season. Is there a reason why that's taking that long, or am I not perhaps thinking about it correctly?

Randall L. Barnard

Well, the timing, generally speaking, is the whole permitting process and FERC certification process. This would be a interstate-regulated pipeline. So we have to go through all the prefiling, public meetings, all the environmental studies, all the FERC certification and that generally chews up 1.5 years to even sometimes 2. So the actual in-service state that we're quoting on the project is fairly aggressive, believe it or not, from the perspective of the development cycle, typical development cycle of regulated pipe.

Carl L. Kirst - BMO Capital Markets U.S.

Great. So it's really all the regulatory issues, not necessarily waiting for more contracts, for instance?

Randall L. Barnard

No, sir. No, sir. The Cabot commitment to that pipeline is sufficient to anchor the construction of that pipe.

Carl L. Kirst - BMO Capital Markets U.S.

No, that's great. And then just a question maybe on the further investment potential in Transco on the gas-fired power generation and, I guess, Alan even mentioned to a lesser extent, the Gulfstream. So as we think about that, and you guys have your wedge pie charts over the next 5 years, do you see that sort of developing as far as perhaps leading to announced projects, something that might be nearer term of the first half of that 5-year outlook, or is it more in the back half? Is there any sense of color on that?

Randall L. Barnard

Maybe I would cop out by saying about the middle half. Transco, in particular, is pursuing over 20 projects right now that are largely driven by power gen growth. And it's up and down the Eastern Seaboard. There is a slide in our packets that I'm trying to find so I can direct you to it. Slide 57 in the data book, we've just touted some future potential expansions on Transco largely -- either along the Leidy Line or in the Southeastern U.S. and in Gulfstream as well. All those is because of our view of potential power gen growth. And there's something -- and some of it would be actual growth, and some of it is driven by coal plant conversions. There's over 30 gigawatts within -- of potential either conversion or new power build within 50 miles of Transco. And we could see -- we are pursuing about the equivalent of 3 Bcf a day or about $2.5 billion of investment associated with -- or close to Transco right now. Now I'm not saying we're going to get all that. We're in competition for that, but it's a pretty positive outlook for Transco.

Carl L. Kirst - BMO Capital Markets U.S.

That's great. And then maybe one final question, if I could, either for Rory or maybe for Alan. And this kind of turns up to Canada and just thinking about Williams 10 years ago. You guys had a pretty large Midstream presence in Canada. You obviously have a growing oil sands franchise right now. There's been a lot of shifting landscape up in Canada, claims to BP assets, Pembina Provident, et cetera. And I guess, my question is, do you guys, with all of the liquids-rich structures that they're finding out there, do you guys see an opportunity beyond the oil sands franchise, or is it more just to kind of develop that key area?

Alan S. Armstrong

Yes, that is a great question. I would tell you that first of all, first and foremost, we are going to make sure that we monetize -- we take full advantage of the great competitive advantage that we have in the oil sands area first. And I would tell you there's a tremendous amount of opportunity to not only capture that existing business but to grow that business further and be able to optimize the value of those streams even better. Our BB splitter that we did in August '10 is a great example of that where we're further optimizing the value of those streams. I would tell you that from our vantage point, that a lot of the oil sands operations are fairly immature in terms of optimizing the value of those resources. And so things like hydrogen that is in big demand out there and will continue to be in big demand. Helium transfer, we think there's a lot of services up there that we have a lot of room to grow that business in. And so I would tell you, we're going to seek out those areas where we have the largest competitive advantages and provide us the highest return. And I would say some of those more competitive areas are going to have a hard time competing with those opportunities. Having said that, we certainly keep our eyes open if we think that some of those projects could demand a return that's competing with our other opportunities that we have both in the U.S. and in Canada.

Operator

[Operator Instructions] And we will go next to Becca Followill with U.S. Capital Advisors.

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

For you, one, on the gathering side, there's lots of moving pieces with the acquisition of Laser and the Springville lateral coming online and some declining volumes elsewhere. Do you guys have guidance for us on percent change in volumes in that segment in 2012 and 2013?

Rory Miller

Hang on just a second. Let me check on that.

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Okay. And then while you're looking, do you want me to ask the next one, or do you want me to wait?

Rory Miller

Yes, you can go ahead and ask another question...

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Okay. The other is on NGL market. You guys lowered your NGLs as a percentage of crude. What was -- we all know that prices are low right now. So is it a function of what you're seeing today, or is there something else that's changed in the market that causes you -- caused you to change your guidance?

Alan S. Armstrong

Yes, I'll take that second question, Becca while. Rory's gathering his info for your first one. I would say that certainly, the current environment has got us a little bearish on that. But I'll also tell you that if you just look historically, if you look at the gas-to-crude ratio or crude-to-gas ratio, and you realize how high that is relative to historical, there is an inverse relationship, generally, that occurs between high crude-to-gas ratio and the NGL-to-crude number. And so even though it seems unprecedented low number on that NGL to crude, we also are unprecedented crude-to-gas ratios as well. And so if you look at the overall margin, I'm not sure that it's that far out of line. And so -- but certainly, the current environment, the very warm winter that we're having, certainly is impacting propane storage. And propane is just as exposed to that as natural gas is. And so that could be a hangover certainly in '12. I think, '13 it's a little early to call, frankly, and we may be a little bit conservative in '13. But I think as we look for both ethane for the balance of this first half of '12 and propane for the balance of the year, that we could see some pressure there just because of what we're seeing in storage volumes on propane right now.

Rory Miller

Becca, just getting back to your question, and you stated it real accurately that there are a lot of moving parts up there on Laser and Springville and the way that they're priced. It gets a little confusing, too. But I think that the thing that we have given some guidance on is kind of where our total capacity is going with Springville. Right now, we're in the 300 range. We'll be going up to 625, 650 over the course of the year on Springville. Laser is going to be up around 1.3 billion a day of capacity. And then Randy talked about the $500 million in a Constitution project. And we also have about $500 million a day of inter-connectivity with Tennessee Gas Pipeline in that field. So that kind of adds up to that 3 Bcf a day of takeaway capacity. And maybe what you ought to keep in mind is that, that is one of the limitations out there. So producers are out scrambling to get takeaway capacity and then drilling to fill that, evidenced by Cabot's willingness to take the full 500 on the Constitution project. So it does take time to build. I think we exited the year, just say on our Springville assets, for instance, and '11 at around $600 million a day. That will be going up by well over 50% by the end of '13. And the Laser -- the whole Laser story is one that's unfolding. It obviously just started up. So volumes are building there. The earning potentials in '12 and '13 are just a shadow of what they're going to be. So we've got a real strong producer group right now behind those assets, and they're going to be ramping up quickly. Cabot, I think, has been pretty transparent about their plans. This is one of WPX's key areas, and they've been having good results out there. And the Carrizo volumes are backed by a drilling carry from reliance. So we're very excited about the opportunities up there, and I think you'll see these producers working hard to take advantage of that takeaway capacity.

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

But no specific number for 2012 or 2013 on percent changes?

Rory Miller

No, we haven't offered that up.

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Okay. And just one more data point on the 1.3 Bcf a day capacity on Laser, is -- where is it now? Just so we can get some kind of sense of how we can ramp it up.

Rory Miller

Yes, it's a little over 100 million a day now and that's a pretty dynamic number. But we're obviously in the early days of starting that out.

Donald R. Chappel

Capacity of that.

Rory Miller

Did you say the capacity of that?

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

No, no, the current throughput. I think you answered it, what I was looking for.

Operator

And at this time, there are no further questions. I'd like to turn the conference back to our speakers for any additional or closing remarks.

Alan S. Armstrong

Okay, great. Well, thank you very much. As we said, we think we continue to have rock solid growth, and it's certainly not dependent on a rising commodity price environment. And if we get some of that and we start to see that at the back half of '12 or '13, we certainly will improve beyond these numbers considerably that we've got it guided for. We're very comfortable with what we have out there, and we think this is great growth in both the cash flows and the dividend that we can continue to produce. And so we're excited about what we have before us, and it's going to be a matter of prioritizing all of these great opportunities to continue to make sure we're executing as well as we have to date. So, thank you again for joining us, and we look forward to talking to you in the future.

Operator

And this concludes today's conference. We do thank you for your participation.

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