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Williams Partners L.P. (NYSE:WPZ)

Q1 2012 Earnings Conference Call

April 26, 2012 11:00 ET

Executives

John Porter – Head of Investor Relations

Alan Armstrong – Chief Executive Officer

Don Chappel – Chief Financial Officer

Analysts

Helen Ryoo – Barclays

Operator

Good day, everyone and welcome to the Williams Partners First Quarter 2012 Earnings Release Conference Call. At this time for opening remarks and introductions, I'd like to turn the call over to John Porter, Head of Investor Relations. Please go ahead, sir.

John Porter – Head of Investor Relations

Thank you, (Matt). Good morning and welcome. As always, we thank you for your interest in Williams Partners. As you know yesterday afternoon, we released our financial results and posted several important items on our website, williamslp.com. These items include the press release of our results with related schedules and our analyst package; a presentation on our results and growth opportunities with related audio commentary from Williams Partners' CEO, Alan Armstrong and an update to our quarterly data book, which contains detailed information regarding various aspects of our business.

This morning Alan will make a few brief comments and then we will open the discussion up for Q&A. Rory Miller is here from our Midstream business and Randy Bernard is here from our Gas Pipeline business. Additionally, our CEO – our CFO, Don Chappel was also available to respond to any questions.

In yesterday's presentation and also in the quarterly data book, you will find an important disclaimer related to forward-looking statements. This disclaimer is important and integral to all of our remarks and you should review it. Also included in our presentation materials are various non-GAAP measures that have been reconciled back to generally accepted accounting principles. Those reconciliation schedules appear at the back of the presentation materials.

So, with that, I will turn it over to Alan.

Alan Armstrong – Chief Executive Officer

Great, thank you, John, and good morning everyone. First of all, of this I had a few headlines here for WPZ very quickly and then we'll turn it over to questions. Certainly, WPZ had a very exciting quarter of both performance and positioning for growth well into our future.

Three quick points here on this quarter and then I will quickly list out some of the operational matters that drove the quarter from our perspective as well. And finally, some quick thoughts on the slew of major projects that we have on our plate.

First of all, we did hit a record in distributable cash flow of $475 million despite NPL used margins slipping down from the fourth quarter of 2011 and segment profit was up 12% over the same quarter of last year.

Second, our stated goal of growing our fee-based business is showing up in our results in a big way, 19% growth in our fee-based revenues in our Midstream sector. And so a lot of the previous CapEx projects that we've been investing in for last several years are really starting to pay off namely Perdido, some of our processing capacity that’s on a fee basis out west and certainly the Northeast Pennsylvanian top volumes as they continue to grow very rapidly. Then as well in our Gas Pipeline group will continue to grow fee-based revenues there. Those were up 6% over first quarter of '11 as well.

And then third, our stated goal of growing the WPZ distribution by 8% to 10% remains extremely well supported, despite an internal forecast of declining NGL margins through our guidance period. As we continue to execute on the new fee-based investments that continued to propel our growth and through the guidance period and well beyond the guidance period.

Now, a few quick comments about the variances for the quarter, first of all, the segment profit as we mentioned was up 12% and this was driven by mild – really driven by the mild winter that we had to a very large degree really in two ways. First, the low natural gas prices certainly helped our NGL margin, despite a declining NGL prices through the quarter. And then two of our – most of our operating volumes were much better than we expected due to lack of production freeze-offs that we often encounter in the first quarter. So, overall, we actually benefited from the mild weather for the results in the first quarter.

Next, DCF or distributable cash flow was up 8%, but this was somewhat negatively impacted relative to our segment profit due to higher maintenance CapEx and certainly our maintenance CapEx, in the quarter was double what we had in the first quarter of 2011. Usually, we are not able to do a whole lot of our maintenance work in the first quarter due to severe weather, but obviously this has not been the case in most of our operating areas this winter. We do still have a lot of maintenance to do during the second and third quarter however, so I don't think you should read that our maintenance CapEx is going to be lower for the entire year. It’s just that we were able to move a little bit of that forward.

So, anyway, great progress going on really across the Board in terms of operating on the growth side. The opportunity just continue to come at us. We are very excited to be in the positions we're in. We think we're extremely well-suited for the demand that we think is going to continue to build on the natural gas side. We are certainly seeing a lot of strong signs of that on our pipelines. And we continue to have a lot of demands for infrastructure at the far ends of – upstream ends of our systems and as well on the downstream end, even in through the petchem infrastructure, we are seeing some very interesting opportunities to invest in and around the NGL infrastructure that will serve the growth in the petchem space as well. So, a lot going on across the Board, but our team is doing tremendous job of keeping up with all the growth and we are continuing to execute both in terms of running the business and as well the continued build out of the growth projects that we have on our plate.

So, with that, I’ll turn it over for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) We’ll go to Helen Ryoo with Barclays.

Helen Ryoo -- Barclays

Yes, good morning. Thank you. I guess I’ll start with the first question on Atlantic Access pipeline. I understand that you are trying to contract out a couple of different transportation packs and some of which have been fully contracted out, but just wondering on the Natrium Path, which is a pretty – I guess one of the larger piece. Could that be filled with, I guess, the gas coming out from the – your Caiman expansion? You have quite a bit of capacity expansion at the Caiman asset between '13 and '14, but would that come into that pipeline or is the Caiman expansion volume already contracted out to other, I guess, pipeline solutions?

Alan Armstrong

Well, I’ll let Frank Ferazzi take the first part of that question in terms of the Natrium Path and I’ll go ahead and answer the second part of that in terms of the Caiman one. Certainly, that will be up to the shippers and the producers from the Caiman gas as to where they want to go with their production. But I don’t believe a lot of those producers have made arrangements for their gas production out of that area at this point and certainly the kind of growth we expect from the area will mean there is going to have to be some infrastructure solutions for that area, but obviously that would be up to each individual producer to make their decisions and we don’t have a full account on their decisions on that basis. I’ll turn it over to Frank to answer the first part of the question.

Frank Ferazzi

Yeah, as part of the restructured project, we’ve added a path out of Leidy to both in an eastbound and westbound direction really based on feedback that we received from shippers and producers that they have some of which have gas in both southwest PA as well as the northeastern portion of it. At the same time, we’ve – that’s put us in a position to actually lower the requirement that we need to at Natrium from about 900 million a day to 700 million a day. And we are in active discussions with producers that have gas in the area that based on the revised in service date of 2015 should be in a position to make commitments longer term as Caiman builds up. We'll size the pipes in such a way that it can be expanded over time. So, as activities in the area, including the activities at Williams will be involved in expand – will be in a position with infrastructure there to expand it rather cheaply. And so the footprint that we have in mind gives us flexibility both upwards as well as downwards.

Helen Ryoo – Barclays

And is that a wet gas pipeline?

Frank Ferazzi

It's a pipeline system that because of the size of it has the capability to blend, for example, ethane, but liquids will have to be removed before it enters the pipe.

Helen Ryoo – Barclays

Right, okay. And then as a follow-up in the event that you don’t end up contracting all these different routes, this is – you could still go ahead with this project, I guess in that case, the scale would be a bit smaller than anticipated?

Frank Ferazzi

Yeah. I mean, that’s the nice thing about the project is it allows us the flexibility to make it larger or smaller depending on the kind of commitments that we can get. And particularly Leidy, since we have existing facilities in the ground, we got the capability to make them as we want. And if we get commitments there sooner, we can execute on that project and then as the market develops in the area, where we're going to build the Greenfield line we can do that at a later date.

Helen Ryoo – Barclays

Okay, great. And then I guess the return – if you were to end up doing a bit of a smaller scale project, does that have any implication on your return expectations?

Alan Armstrong

It shouldn’t.

Helen Ryoo – Barclays

It shouldn’t. Okay, great. Thank you very much for that. And then I guess another – I have a question about the Constitution Pipeline, is the cost of this pipeline in your guidance at this point?

Alan Armstrong

Yes, it is.

Helen Ryoo – Barclays

Okay, great. And then the total capacity is that 650,000 dekatherms?

Alan Armstrong

Yeah.

Helen Ryoo – Barclays

Okay. So, that’s just fully contracted out?

Alan Armstrong

Yes, it is.

Helen Ryoo – Barclays

Could you add more capacity if you – going forward?

Alan Armstrong

It has the capability down the road to be expanded as the market requires.

Helen Ryoo – Barclays

Okay, great. And then on the Virginia Southside Expansion Project, what's the total cost of that project. Is $75 million is that all you need to spend?

Alan Armstrong

No, actually the Virginia Southside Project has an estimated cost in the neighborhood of $300 million.

Helen Ryoo – Barclays

Okay. Because you only increased 2013 CapEx by 75 and you didn’t increase the 2014, so, is your expectation that you will spend 75 in '13 and then spend the remaining in '15?

Alan Armstrong

That's right.

Don Chappel

Yeah, this is Don. I would say that we also had some things if we're moving around another project. So, we really – the total number in '14 doesn’t change.

Helen Ryoo – Barclays

Okay. Great, thank you very much.

Alan Armstrong

Thank you, Alan.

Operator

And with no other questions at this time, I'd like to turn the call back to Alan Armstrong for any additional or closing comments.

Alan Armstrong –Chief Executive Officer

Okay, great. Well, thank you very much. We continues to be very excited about our growth path forward and we look forward to getting to speak with you in some more detail about these various projects at our webcast and our Analyst Day on May 22. So, thanks again for joining us this morning.

Operator

And again, that does conclude today's call. Thank you for your participation. Have a good day.

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