Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Williams Companies Inc (NYSE:WMB)

2012 Guidance Update

March 20, 2012 9:00 am ET

Executives

Travis N. Campbell - Head of Investor Relations

Alan S. Armstrong - Chief Executive Officer, President, Director , Chairman of Williams Partners Gp Llc and Chief Executive Officer of Williams Partners Gp Llc

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

Analysts

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

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

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

Heejung Ryoo - Barclays Capital, Research Division

Unknown Analyst

Operator

Good day, everyone, and welcome to the Williams Companies Inc. Conference Call. At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Travis Campbell. Please go ahead, sir.

Travis N. Campbell

Thank you, and as always, thanks for your interest in the company. Today, we're here to discuss the exciting acquisition we announced at the close of business yesterday. As you for sure noticed, we also accelerated the WMB dividend and gave updated guidance for '11 -- for '12 and '13, as well as provided 2014 guidance for the first time. Alan Armstrong, Don Chappel and Rory Miller are here with me this morning. And in a minute, Don and Allen will quickly go through these exciting developments, and then we'll take your questions.

Before I turn it over to Alan, let me remind you that a few of the slides today in today's presentation -- that the few slides in today's presentation are available on the web at williams.com or on williamslp.com. Also, you can find there more detailed schedules with the 2012 through '14 guidance. Also, you can find where any non-GAAP numbers have been reconciled back to GAAP numbers. On Slide 2 and 3 of today's presentation is our disclaimer on any forward-looking statements. You should review those pages.

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

Alan S. Armstrong

Great. Good morning, and I'm going to start here on Slide 4. First of all, we have very exciting news we're going to talk about today on the Caiman acquisition. As well, we'll talk about the financing details around that. And then finally, Don will provide some detail on our guidance raise and another very substantial dividend raise that we're announcing. So first of all, on the deal, very excited about this location. We've been very clear with folks all along that we intend to be the #1 and #2 player in the very large Marcellus basin, and we think this moves us another step in that direction. And we'll talk about the overall scale with that, what this brings to us. But certainly this Caiman acquisition exciting just from the existing cash flows from this business, but as you'll see that our sites are aimed quite a bit higher than that in terms of the overall NGL infrastructure solutions and gas takeaway infrastructure solutions for this area. And we think this provides us a great platform for that.

Turning onto Slide 5. Here now, I'll get into a little bit of details on the Caiman acquisition. First of all to just tell you, this area, we, of course, continually study the various areas and figure out where the best locations are for us to be from which basins we want to enter. This is absolutely the best we think right now in the U.S. from a gas drilling location. Wells in this area 4.5 to 7.5 EURs and about 1,350 MMBtus in this area. The liquids production from this just from the NGLs is about 70 to 160 barrels per million cubic feet and so very excited about what this brings to us. In terms of the drilling net backs, which is really key to how attractive this area is from our standpoint, today even at the lower prices we're seeing today on the natural gas and without any ethane advantage, this gets us to about a net back to produce or about $5.70 at 230 gas. And that is without any uplift from ethane, which we think ultimately will be.

So next moving on here to the acreage dedications and what comes to us in this area. This is the, as I said, the rich-gas area in the Marcellus, and we think the wells produced here will produce about a 75 -- an IRR of a about 75% here for producers in this area. And on this -- looking here to the center column then, we can see the acreage dedications. We'll talk a little more about this, a little more detail here on this. But about 236,000 acres are dedicated to us in this area from 10 producers, and in addition to that, we have about another 100 million cubic feet a day of additional commitments that are not dedicated acreage but are by contracts, so very exciting area that's already heavily contracted in this area. And then moving to the right-hand column here on Slide 5, talk a little bit about the system as it sits today. This is going to be a very large-scale system for us. And first of all, the processing capacity here by the end of 2013 will be nearly 1 Bcf a day in this area. So as we've been very clear in the past, we're really only focused on being a large-scale infrastructure provider, and we certainly think that gets us here. On the fractionation capacity, by the end of 2013, we'll be up to almost 73,000 barrels a day of C3-plus fractionation and another 30,000 to 45,000 barrels a day of ethane -- de-ethanizing capacity in this area. So just clearly this area, we think, is going to positioned to attract both new NGL infrastructure solutions for the area, and we think it's going to position these assets to be the place for producers to be bringing their gas, as it attracts the best markets for both gas takeaway infrastructure and as well as NGL infrastructure solutions out of the area. As well, this asset is positioned right next to the Utica, does include 2 river crossings and as well ethane pipelines in the area as well. And so we -- in terms of Utica JV, we're not going to provide a lot of detail on that today, but we're very excited about the way we're positioned with Caiman to have first-mover advantage on serving the Utica JV in this area.

Moving onto Slide 6. The area just around this is the kind of what the processing plants being centered here have about 300 Tcf of gas in place, and that's just within a 35-mile radius that we think we'll be highly competitive in. Attracting a vast majority of the acreage out in that periphery is not dedicated to us or anybody else. But in right in the core area, which we think is very impressive, right in the core area around these assets, 50% of the acreage in Marshall County is dedicated to these assets and 30% in Wetzel County. And we certainly expect to continue to grow the acreage dedication in the Wetzel County area. So overall, we have a very broad area here, that very fertile Marcellus Shale that we think we'll be able to contract for additional volumes, but the competitive advantage that we have by the large and dense dedication in Marshall County and Wetzel County, we think, really protect these assets well from a competitive standpoint.

And by 2020, we expect volumes just from these assets to be over 2 Bcf a day of gathering. And on the liquid side, we would be expecting to produce 300,000 barrels a day of NGLs and condensate from this area. So as you can see, one of the key issues for this area is going to be both gas and NGL takeaway capacity, and we certainly think this provides us a platform to be a big player in that space.

We also provide on this slide the amount of CapEx that we expect to invest through the 2012, 2014 timeframe, so in addition to this acquisition price, we do have a pretty hefty lift here on the amount of capital required to build the rest of the system out. Of course, once we get beyond -- into 2015, we'll think we'll have the majority of the system built out. And the free cash flows from this system are tremendous once we get into 2015 and certainly, even in 2014 are substantial. You can see our expectations of that there over on the right-hand side of the page by 2014, our adjusted segment profit plus DD&A being over $400 million.

Moving on to Slide 7. You can see the expected strong well connects from the area, and right now, there's about 6 to 7 rigs running in this area that we think will produce about 85 well connects into our system. And there, you can see peaking at about 174 well connects in 2015 and '16 and that's about 12 to 13 rigs running in this area. We think that's -- could actually exceed that just because of how attractive this acreage is going to be. And as well, as producers get their well pads established, their ability to improve efficiency with that. And once the well pads are established, we think will enable them to ramp up very quickly in terms of the number of wells connected into our system on an annual basis. And then you can see over on the right, the volume projection that we have for this area. And again, this is with pretty good knowledge of what is going on out here on the actual wells that are being drilled and very good delineation of this area that's dedicated to us in terms of EUR. So pretty excited about the way this growth chart looks, but I'll tell you if all we capture is this business, I'll be very disappointed because this is really just from the space of business that we're starting with here. And I think we'll be to grow this well beyond this.

Moving onto Slide 8. Now this is a picture of kind of the overall Williams position in the area, particularly Williams Partners and many things to look at the this map. I'll first point out that we would expect from this area 5 Bcf a day by 2015 from the Marcellus, and that is just with our existing positions in the Susquehanna area, the Laurel Mountain system and our joint venture there with Chevron and now this Caiman acquisition. It does not include anything that would be speculative in terms of our confluence project, which you see here in purple on this slide, nor does it include anything from that Utica JV. So just from our existing business that we have today and the -- about -- now about 1.2 million acres that are now dedicated to us in the Marcellus area, we expect to see that 5 Bcf a day by 2015.

In addition, as I mentioned earlier, this would be about 300,000 barrels a day of liquids, almost all of that coming from this Caiman acquisition, and again, none of that coming from that Utica or the confluence area. So you can see this area is going to require a lot of large-scale infrastructure solutions, and you can see some of that in terms of our gas site solutions that we're proposing for the area here on both the Atlantic Access project, the Leidy expansion that's going on right now and as well as the Constitution Pipeline or what we're showing here on the gas pipeline side. You'll also note the lateral on the Atlantic Access project that goes up into the confluence area referred to as the buffered lateral.

So we've continued to execute in the Marcellus in a way that we've been consistent telling you we are going to have this as one of our major focus areas, and we are going to be, if not the largest, one of the largest players here in the Marcellus. And so you should expect to see us continue to announce expansion projects in this area as we grow this.

And with that, I am going to turn it over to Don Chappel to talk about some of the financing details.

Donald R. Chappel

Thanks, Alan, and good morning. Delighted to speak to you this morning about some exciting announcements. Just referring to Slide #9 to follow Alan's comments here, we're pursuing a balanced financing plan that we believe is disciplined and also positions us well for even further growth. And you'll recall from our quarterly calls and projects that we've outlined, including one that Alan just spoke to -- a couple that Alan just spoke to, and that's Atlantic Access, the confluence project an even greater growth around these assets in the Utica, as well as asset growth throughout our system. Again, we're well positioned for even greater growth. As we look at this opportunity, again, we expect this, the Caiman acquisition and what flows from it to add significant long-term shareholder value. We do expect very strong financial returns as these assets really begin to develop in 2014 and beyond and the fact that they will also contribute even more value adding growth opportunities in, we believe, as early as this year and certainly over the next several years.

We've designed the -- our financing plan to preserve our investment grade ratings at both WPZ and at Williams. As well I would say importantly, this partnership between Williams and Williams Partners demonstrates the strategic advantage that Williams, Williams Partners has in pursuing large-scale opportunities, whether they'd be acquisitions like this one or organic growth opportunities. And we think, again, at this moment in time, when North America infrastructure is being built out to connect these shale resources to markets, the infrastructure requirements are very, very large. And again, I think we're demonstrating here that Williams and WPZ together have the capacity to pursue a large -- very large-scale opportunities.

I would note that our capital spending plan for 2012 is now at $6.6 billion. And again, we have many other opportunities that we're continuing to pursue. Just in terms of major steps on the right side of this page as -- and these were outlined in our press release, but I'll just hit on the key points. WPZ will purchase 100% of Caiman Eastern Midstream for about $2.5 billion, and that's $1.78 billion of cash and 11.8 million WPZ units, and that's an approximate. And the $2.5 billion was calculated with the 61.24 unit price. Obviously, the final value of that will be determined at closing based on the unit price, but the unit price -- or excuse me, number of units are set and is just a little over 11.8 million WPZ units. WPZ will fund the $1.78 billion of cash with about $1 billion of equity issued to Williams, and the remainder will be financed in the public equity markets, as well as with debt and available cash on hand. Williams will fund its $1 billion of WPZ equity with a combination of public equity debt and available cash. And this is the first time that we've even hinted at issuing Williams equity, but we're inclined to issue and plan to issue Williams equity in support of this transaction for at least half, if not, somewhat more of the $1 billion purchase price. And the rationale there is to, one, to maintain our investment grade rating at Williams. We think maintenance of that rating at both WPZ and Williams is important to us as well as to our customers, so we're, one, seeking to do that. And then two, as you well know, we have significant additional projects that we're working on, including those that Alan highlighted and I touched on, that will be additive to our capital spending profile. So the acquisition's at $2.5 billion. There is another $500 million of buildout just on the Caiman assets this year. So that's the strategy we want to ensure that we maintain our investment grade ratings and our ability to continue to pursue additional opportunities that have these very attractive returns and will also lead to even greater growth in future periods.

We're waiving the IDRs in 2013 and 2014 in support of WPZ and as well, we've put in place a $1.78 billion interim liquidity facility at WPZ to fund the cash portion of the purchase price and naturally, a backup facility. And we would not expect that it would be used.

Let's just turn the page here a moment and talk about some of the metrics. Again, we're accelerating planned dividend growth at Williams and updating guidance. I can tell you I'm excited to announce today that we're boosting the dividend once again to include a very significant contribution from our Midstream Canada & Olefins business. We originally planned to do that in a later date, but in light of this transaction, we felt that it was prudent to pull that forward. So let's just focus on the left side of the page. Again, WPZ is updating its guidance. We've lowered our assumed natural gas prices by about $0.50 per million cubic feet in '12 through '14, and that'll contribute about $75 million a year of additional segment profit. The Caiman acquisition, as Alan mentioned, will contribute segment profit plus DD&A at expected levels of $40 million in '12, $200 million in '13 and $400 million by 2014. Capital is up $3 billion to $6.6 billion in 2012 as a result of the acquisition and follow-on growth spending, identified gross spending related to these assets. DCF is up 35% to $2.3 billion in 2014 from $1.7 billion in 2011. And then finally and perhaps most importantly is we're expecting what we believe are still industry-leading cash distribution growth rates of 8% in '12 and 8% to 10% in each of '13 and '14. And that's up a bit from our prior guidance.

At the Williams level, we're updating our CapEx, again, to reflect the Caiman acquisition at WPZ as I mentioned earlier. And we're also increasing adjustment segment profit plus DD&A to $3.9 billion in '14 from $3.1 billion in 2012. That's a 26% increase. And really what's driving that is a number of projects and investments that we've spoken to market about in the past, and they include the GulfStar project, the Keathley Canyon project, the various pipeline projects including Rockaway and Northeast Supply Link, our expansions in the Marcellus, the Parachute TXP1 project. And then at the Midstream Canada & Olefins sector, we have the Boreal pipeline going into service here this year, and we have the NOVA ethane project going into service in '13, so the first full year will be in '14. And then we have the Geismar expansion going into service in kind of third quarter 2013. So if you add them all up, we have a lot of projects as we typically would. They're a couple of years out in terms of in service dates, and with the amount of capital we've been investing, that's really driving 2014 quite a bit higher. And obviously, Caiman contributes to that to the tune of an expected $400 million.

Adjusted EPS is, in 2014, is now $1.80, up from $1.23 in 2011, up 46% and then, again, perhaps very importantly, the distributions we expect to receive from WPZ at $1.5 billion by 2014, which is up 65% from the $910 million we received in 2011. Obviously, the IDRs are a big contributor to that, as well as the many growth projects that I mentioned earlier.

Just shifting to the right side of the slide. Midstream Canada & Olefins, again, is now going to contribute significantly to the Williams dividend while still remaining very strong coverage in those businesses. The coverage ratio is forecast at 1.7x in '12 and 2x in '13 and '14. And that largely accounts for commodity price risk in those businesses, and we're continuing to focus a lot of our development on fee-based business, but we do have some commodity risk here. And we'll continue to evaluate those coverage ratios as we move forward to determine if they can be brought down, but we think that's the right place to start.

Cash flow from coverage of much as it is at Williams Partners will be reinvested in MC&O to drive even greater growth. And as we've mentioned in the past, we have very significant projects especially in Canada beyond what's in our guidance, and we would hope to capture some of those projects in the not-too-distant future, so you have more information about some of those additional investments. And despite the boost in the dividend, the contribution of MC&O that the growth -- robust growth outlook is unchanged. So we're really not changing our growth plans for that business. We're just counting some of the distributable cash flow, if you will, less coverage as being available for dividend and boosting the Williams dividend as a result.

So the end result here is we're boosting our 2012 dividend guidance to $1.20 from our previous guidance of $1.09. And that $1.20 is up 55% over 2011, and we'll continue to expect increases each and every quarter as WPZ distributions grow, and we're expecting an additional 20% dividend growth in 2013 and on top of that, another 20% growth rate in 2014. And while we're not providing guidance in 2015 and beyond, I could tell you that the growth outlook is very substantial in those outer years as well.

With that, I'll turn it back to Alan.

Alan S. Armstrong

Great. Thank you, Don. As Don explained, we're really excited to be bringing on another layer of growth that gives us even greater confidence in our ability to continue the dividend growth. And so previously, we had the MC&O business held out for that growth. We're very confident in being able to bring that in and a modest amount of that cash flow. And now we've got another layer of very significant growth that will give us growth rates at that 20% level well into the future.

So let me wrap up here on this acquisition. First of all, this is a location, location, location kind of deal. These are certainly the places where we expect drilling rigs to be attracted to. The contracts that we have in here are long term. They're fee based. The Caiman team along with EnCap have really done a great job of getting out ahead of this area and getting the business contracted up. And they've made a great start at expanding the infrastructure here in West Virginia. They've done a great job of working with the local regulators and starting things off on the right step here. And so we're very excited to build on what that team has developed here, which is very impressive. And we look forward as well into working with them on the next couple of platforms. First of all, the Utica JV that we mentioned and excited about working with that team to develop that, we think that could really build into something significant. And as I mentioned, we've got a first-mover advantage here by having the processing that can be accessed in particularly the liquids fractionation and liquid markets from this area, as well as a couple of river crossings that will help enable that.

Secondly, the other piece I mentioned there was the platform on growing the NGL infrastructure solutions. I'll tell you that probably the biggest risk of this investment is making sure that the NGL markets remain available and we knock down any barriers that exist for our producers to be able to getting into the best NGL markets. And we certainly expect to do that as this area attracts more and more liquids and we think are going to attract great NGL infrastructure solutions, many of which we hope to provide.

As well, I mentioned the fee-based nature of the contracts. These are -- about 93% of the revenues here are on -- from a fee-based business, so we have a little bit of upside on the liquids side here, but for the most part, that is on the fee-based side. Very little of the economics, in fact, really none of economics here are based on any ethane upside for the producers, but we think that'll come, and we think that'll attract even more and more drilling in the area as those infrastructure solutions begin to present themselves.

And so overall, this is exactly what we've been hoping to do is to continue to expand our presence in the Marcellus, and we really think this moves us into the NGL window here in a big way. And we think it's going to be a platform for growth for many years to come, outside of the cash flows that we were counting on just for this investment. And so with that, just tell you that we are excited to see the continued dividend growth, and we're excited to see the kind of confidence that we have in being able to sustain that for many years to come.

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

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Andrew Gundlach, First Eagle.

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

Don, if -- Alan, sorry, if you could, could you pick up on that -- on the kind of strategic aspects of the Caiman acquisition in terms of building out the NGL infrastructure that you need to build kind of a Rockies east hub if you will? What -- how many more pieces do you need? And how important is this in the -- obviously, it's very important. But how many more pieces do you need in the total puzzle?

Alan S. Armstrong

Yes, a great question, Andrew. Well, I'll tell you today, the economics that we've got embedded in here assume continued use of local markets and barging off to river and so forth. So kind of the assumed economics that we have embedded here don't call for any major expansions into new markets or new takeaway capacity. We see those as additional investment opportunities beyond that. But as it sits today, the barrels would be going -- the C3-plus barrels would be going to the fractionation complex on the river and would -- and as well the ethane would be getting transport up to a location. That'll be kind of a first ethane solution for the area. And so that'll kind of be the initial opportunities that'll be there. Investment infrastructure beyond that will be things that we'll be working to build that will bring higher net backs to the producer and we think even to make this an even greater place to drill. But as we have these economics, it's dependent on just the, what I would call, marginal solutions that are in place today, which are really based on barging for the most part out of the area.

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

And you see -- my last question, you see yourself focused then like in the Rockies on the upstream in a sense that it's gathering and processing but leave the fractionation and the pipelines to others? I don't even know if there's an overland pass type of potential project in the area.

Alan S. Armstrong

No, I would say that we certainly will have our eyes on -- we think this gives us enough critical mass to be a solution provider for the downstream infrastructure. And it does -- this does include -- by the end of 2013, we'll have about 73,000 barrels a day of fractionation capacity, so a very substantial fractionator. And if you equate that, that's missing the ethane side of that barrel, so when you're comparing that to a normal sized fraction, that's a very large fractionation complex, actually, on the C3-plus side, larger than our Conway fractionator on just the C3-plus side. So very substantial infrastructure that comes to that, we just think -- we think overtime with this amassing of liquids that it's going to avail us even more efficient and better market access for producers out in this area.

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

And that 73,000 is -- excludes ethane?

Alan S. Armstrong

Yes, that's correct.

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

And how much of that would come from the Utica?

Alan S. Armstrong

None of that is from the Utica. As just -- that is just serving this area.

Operator

We will go next to Carl Kirst, BMO.

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

A lot going on, looks good. The question just to reconfirm. Alan, did you say 93% of the revenues are fee based. There really is no sort of percent of proceeds here?

Alan S. Armstrong

That's a very small portion that is percent of liquids. But yes, 93% of the revenue is fee based.

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

And then so should that EBITDA, if you will, just sort of ratably move up to the 2 Bcf a day mark that we're seeing in 2020? I mean, it's just sort of a pure volume leverage system here?

Alan S. Armstrong

Yes, for the most part, that is the case. There'll be a little bit of movement. As we begin to provide ethane solutions, we'll get a little more on the gallons that we're actually fractionating or separating out. So we won't be enjoying the margin on it, but we'll be getting paid on a volume -- on a gallon basis for some of that and a very small amount on the upgraded product. So for the most part, it is ratable to the 2 Bcf.

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

Great. And then if I could, just when we look out at the 2014 EBITDA and you look at the acreage dedication and the contracts that we have in place now, how much of that, of that $400 million, for instance, is coming from acreage dedications on the come, if you will, versus sort of what is simply in place right now?

Alan S. Armstrong

On that $400 million, that is just from this existing acreage dedication so...

Operator

We'll go next to Becca Followill, U.S. Capital Advisors.

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

I have several questions for you. First, just stepping back, what assets -- for the $2.5 billion that you're spending, what assets are you buying today? And then the $1.3 billion of CapEx, what is that being spent on?

Alan S. Armstrong

Yes, sure. Just in terms of the assets that are in place today -- and of course, a lot of these are in a stage of being completed, so let me run through kind of the -- what's going to be done at the end of 2012. And most of this is already in place, but I'll talk about the distinction there a little bit. First of all, 320 million a day of cryo capacity at Fort Beeler, the 12- and 24-inch trunk lines that you can see on the maps here, so most of the major trunk lines for the system are in place today. A 4-inch condensate gathering system, which is critical to getting the net back for this area obviously, and the first train at the frac train, which is about 13,000 barrels a day is just about completed. In terms of what will be done for the balance of the year, an extension into the -- a 24-inch trunk line extension of Wetzel County and then converting or going to an 8-inch NGL line between the cryos and the new fracs. So most of that is well on it, so either already in place or well on its way to be completed here in the very near term. And then in -- and then through the balance in '13, we'd be adding about 200 million a day of cryo at Fort Beeler and another cryo location at Taylor, which is about another 200 million a day of capacity in 2013. Obviously, that works well underway as well to be completed in 2013. Also in 2013, we'll complete the ethane pipeline, a propane pipeline, the second train at the fractionation site, which is about -- it will bring some 30,000 barrels per day and then the new de-ethanizers at the processing facilities, which would give us about 30,000 barrels a day of de-ethanization capacity. So the balance of it, it gets completed in 2014, which is -- finishes up the 400 million a day cryo capacity at Taylor, and then another 30,000 barrels a day to the frac train. And so 2 30,000 barrels of frac train completions in '13 and '14 added onto the existing 12,500 that exists at the frac train one today.

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

And then on the JV, how's that going to be structured on the Utica JV?

Alan S. Armstrong

We are in the process of finishing the details on that, but I'll just tell you that we would be responsible for kind of field operations on that. Caiman would be responsible for finishing up the commercial contracting for that business. And we would have the rights to invest a substantial portion of the investment and get certain rights along with that investment. So not ready just, to this point, to give you a lot of details. Certainly, intend to on or about closing of this transaction to be able to provide more detail for you on that.

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

And then what are the restrictions on Caiman selling their units of WPZ?

Donald R. Chappel

Becca, we have restrictions that go out about 1.5 years, so they'll be holding those units for at least that period of time.

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

And then always we have to ask what's next. So does this put you out of the market for making other acquisitions? Or are you still looking for other things that fit at Williams or with WPZ?

Alan S. Armstrong

I would say certainly, we'll continue to keep our eyes open for the areas that are critical to us. I would tell you this investment, along with the confluence project we're working on Atlantic Access, give us a lot to work on for the Marcellus, and so from a people standpoint -- we're going to be fairly constrained in this area from a people's standpoint, but certainly, we always have our eyes open for things that will be strategic in nature. I would say, though, that it certainly narrows the array of things that we would be looking at and would certainly put us into the capital allocation process tighter than we've been in the past.

Operator

We'll go next to Helen Ryoo, Barclays.

Heejung Ryoo - Barclays Capital, Research Division

First question is how much of the processing capacity utilization you've embedded in your 2014 guidance?

Alan S. Armstrong

Let's see. I think you could just take -- from the information we've shown here, I think you could take -- the end of '14, we expect to have over a Bcf a day of capacity. And in '14, it looks like we're right at that -- at the end of -- that's an -- that 2014 number puts us right at the capacity utilization for the cryo.

Heejung Ryoo - Barclays Capital, Research Division

Okay. So you expect to fill that capacity by end of 2014?

Alan S. Armstrong

That's correct.

Heejung Ryoo - Barclays Capital, Research Division

Okay. And then...

Alan S. Armstrong

One thing I would point out on that, Sharon (sic) [Helen] is the numbers that we -- I was quoting you earlier are on the capacity of these plants in full ethane recovery. If we're not recovering ethane from these sites, we do have -- we could actually put more gas through the plants. So those are kind of nameplate numbers in ethane recovery, and so we can squeeze more through there if we're not recovering ethane or we turn down the ethane recovery just enough to meet gas quality specs.

Heejung Ryoo - Barclays Capital, Research Division

Okay. And then did you say that you are adding 400 additional cryo capacity in 2014?

Alan S. Armstrong

That's correct.

Heejung Ryoo - Barclays Capital, Research Division

And then just on the Utica JV, when do you expect to start spending capital? And I guess those numbers are not in your guidance.

Alan S. Armstrong

That is correct. The numbers are not in our guidance. And I think initially, the capital on that would be pretty modest, but we're going to be in a position to ramp that up very quickly along with other partners. So we're not the only capital provider into that joint venture. And we're waiting for some of those other parties to be able to ready to announce their commitment to the JV as well.

Heejung Ryoo - Barclays Capital, Research Division

Okay. And I guess it could be as early as 2012?

Alan S. Armstrong

Yes.

Operator

[Operator Instructions] We'll go next to Dmitry Baron [ph] , Decade Capital.

Unknown Analyst

Don, a few questions for you, please. First of all, by highlighting advantages of the WMB, WPZ structure, do you mean your ability to issue both equity and debt at both levels to finance future acquisitions? And also, it looks like Williams had approximately $216 million of domestic cash at the end of the year, so does it mean that you will have to draw down under your revolver or maybe issue some permanent debt at WMB, please?

Donald R. Chappel

Dmitry, yes, I think the fact that Williams as a C core has accesses to equity capital markets and debt capital markets as well, obviously, increases the firepower available to us, given that the MLP market is more finite. It's very large. WPZ can raise very large amounts capital, but it still has its limitations. So by Williams' ability to partner with WPZ to the benefit of both the partnership and Williams, we think that's a strategic advantage that we enjoy. That really differentiates us from the MLPs that don't have a C-core parent. We -- our plan, a, is to always issue WPZ equity and debt, and Williams is really there to back that up in important situations like this one. And we think this one is an important strategic opportunity that we felt was compelling to issue some Williams equity and perhaps debt. Yes, we do have some cash. We do have a Geismar expansion that will consume some of that cash. And again, the rest is all about keeping the credit metrics at the right level. While this asset will contribute significantly to cash flow in 2013 and '14, it contributes a modest amount in 2012, and so that really creates a tight spot on credit, which we're planning to solve with both the WPZ and the WMB equity issuance that I just described.

Unknown Analyst

So just as a follow-up, please, so does it mean that you will to issue -- still have to issue some debt at WMB level at this point? Or I'm not sure it's going to be able to cover debt, cash and equity.

Donald R. Chappel

We have a significant undrawn revolving credit facility, so I think you'll have to stay tuned for that. I'm not prepared to provide any guidance. So right now, we've got some flexibility around cash, debt and equity.

Operator

We'll go next to Dan Hynes [ph] , Morgan Keegan.

Unknown Analyst

Question, have you all done payback analysis of this? How many years is this going to be before this pays out? And then the second question is on this pinch of the IDRs for 2013 and '14, I'm a little confused because it says in the slide temporary waiver through 2013 of GP IDRs on new LP units the -- only on the LP units issued to Caiman and to WMB. And so I'm a little confused because the verbiage, I think, you said, just mentioned the IDRs for about 2013 and '14 and I'd like some clarification.

Donald R. Chappel

This is Don. I think I missed both on the IDRs. It's exactly what the press release indicates. It's -- the incremental -- only the incremental IDR is associated with the units issued in this transaction, and it's only for '12 and '13. So the estimated waiver in '12 is $26 million. The estimated waiver is -- in '13 is $42 million, and there's no required waiver in '14. And at that point, we expect WPZ can carry this on the cash flow contribution from the asset and still increase its distributions at that 8% to 10% rate that we described earlier. On the payback, it's about 8 years. Of course, that includes the capital that we have in there as well, so it's a little bit of a clumsy calculation because we are continuing to spend capital through -- pretty heavily through 2014, but in taking that all into account is about 8 years.

Operator

We'll go next to Matthew Lombardi [ph] , CDP Capital.

Unknown Analyst

Can you hear me?

Alan S. Armstrong

Yes.

Unknown Analyst

One, are there any regulatory approvals that are necessary to close this transaction? And when would you anticipate closing transaction?

Alan S. Armstrong

The regulatory approvals would require Hard-Scott approval, and that's probably the primary item. In terms of closing, we really don't have any other major barriers besides that. So it's -- if you can guess how long that'll take, that's pretty good indication of when the closing will be.

Unknown Analyst

What are you using for your own kind of planning purposes, ballpark?

Donald R. Chappel

I think we said second quarter in the release, so I think we're talking within 3 months, so kind of 1 to 3 months.

Unknown Analyst

Okay. And also with regards to the financing, you clearly indicated that there will be -- of the $1 billion from WMB that 50% or maybe more would be equity. Do you intend to bridge that initially by drawing down on your revolver and then at some point in the future, taking that out with the equity contribution? Or do you -- it being more para pursue and contemporary with the -- on closing.

Donald R. Chappel

Yes. I would ask -- you're going to have to stay tuned for the exact timing on that. Obviously, we'll be looking at a number of factors in terms of closing as well as the way we perform in the markets.

Operator

We have no further questions in the queue at this time. I'll turn the conference back over to our presenters to offer any additional or closing remarks.

Alan S. Armstrong

Okay. Well, great. Thank you all very much for joining us. I know it's a busy morning and appreciate people tuning in for this. Very excited about this transaction's write-down, our strategic intent and one we've been very clear on and really excited now to get after the execution that I think Williams is probably best positioned to follow through on. And also excited about the follow-on opportunities that we hope to be announcing around this transaction in the future. So thanks again for your attention this morning.

Operator

That concludes today's conference. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Williams Companies' CEO Hosts 2012 Guidance Update Call (Transcript)
This Transcript
All Transcripts