威廉斯 (WMB) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to The Williams Companies' fourth-quarter 2010 earnings release conference call. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Travis Campbell, Head of Investor Relations. Please go ahead, sir.

Thank you and good morning, everybody. Welcome to our fourth-quarter 2010 earnings call. As always, thank you for you the interest in our Company.

Initially, I would mention that on our website, Williams.com, you should be able to find a number of things -- first, a few slides that we will be talking from this morning; second, the data book that contains the usual information that we make available each quarter; and finally, three press releases -- first, the separation release that we issued last evening; second, the report of fourth-quarter results; and third, our year-end oil and gas reserves. The last two were issued this morning.

In a minute, Alan Armstrong, our President and CEO, will review the few slides that we have this morning. Be aware, though, that, as always, all of our business unit heads are here and are available to respond to questions after Alan's remarks.

Here with me are Ralph Hill, who heads the E&P company; Rory Miller, who recently took over the reins of the midstream company; and Phil Wright, who heads our gas pipelines. Also, you certainly saw the notice that Phil will be taking another role the Company later this month, and Randy Bernard is going to lead the gas pipelines, and he is with us as well. Also, Don Chappel, the CFO, is here as well.

As most of you are aware, yesterday we announced our plan to separate our E&P business through a partial IPO and a subsequent spinoff of our remaining ownership interest. Alan will make brief remarks about this plan during his comments, but because of security law restrictions, we will not be commenting further or taking any questions on the E&P separation during this call. I would direct your attention to the press release that went out yesterday.

At the beginning of the slide deck are the forward-looking statements on slide number 2 and number 3 and a disclaimer on oil and gas reserves on slide number 4. Those are important and integral to the remarks, so please review those.

Also included are various non-GAAP numbers that have been reconciled back to generally accepted accounting principles. Those schedules are available and follow the presentation.

With that, I will turn it over to Alan.

Great. Good morning, and I will start here on slide 5. I'm certainly pleased you have joined us for our call this morning and to hear about a strong finish to 2010 and the exciting future for Williams' shareholders.

Our management and Board have worked diligently over the last couple of months analyzing the best path to unlock shareholder value while maintaining growth platforms for the future.

As Travis mentioned, we will not be able to provide details of the transaction or forward-looking perspectives of the new E&P company. Despite this restriction, we have plenty of exciting information to share with you about WMB's 2010 performance and the growth drivers for the future.

I'm also pleased to inform you that we exceeded our earlier guidance range for earnings per share, and we are raising guidance for 2011 and 2012. And with that, I will move on to slide 6.

As we announced yesterday, our Board has given us the green light to pursue the creation of a separate E&P company, starting with a partial IPO in the third quarter of 2011 and then a planned spinoff of the remaining interest to our shareholders in 2012.

WMB would use the IPO proceeds to pay down corporate debt, and we would expect to maintain investment-grade credit ratings at WMB and WPZ. I would refer you to the press releases from the three credit rating agencies that rate our debt that came out shortly after our announcement yesterday if you would like to know their perspectives in more detail.

This new structure enables WMB to initiate a high-dividend strategy. We are announcing a 60% increase starting with quarterly payout in June of 2011, going from $0.125 to $0.20 per quarter, and we are targeting an additional 10% to 15% increase in June of 2012.

Both of these actions are a direct response to hearing from our shareholders and gathering thoughts over the last, actually, several years in terms of thinking about how we can increase shareholder value. So we're pleased to be reporting this to you this morning.

WMB and WPZ will be focused on meeting the robust demand for new infrastructure that helps our customers and our nation take advantage of North America's abundant natural resources. As you will see, we have a lot of new infrastructure being built and plan to do just that.

Moving on to slide 7, our full-year financial results were boosted by a very strong fourth quarter. Our adjusted net income for the fourth quarter was up 60% over the same quarter in 2009. This drove our adjusted EPS from continuing operations for 2010 to $1.28 per share, and that is 36% higher than our 2009 level of $0.94.

As you know, our full-year GAAP was heavily impacted by noncash impairment charges in the third quarter, and we had significant costs related to the WPZ and WMZ merger and the related debt restructurings required for that transaction.

For the year, we're ending up at a GAAP loss of $1.1 billion, and on an adjusted basis, net income was $760 million, which was up 38% over the same number for 2009.

I won't spend much time here on the reserves since we provide some great graphics here on the next couple of slides that I will explain the reserves with.

And moving into slide 8, you can see here, starting with the left-hand side, you can see our year-end 2009 reserves, and you can see the various adjustments that get us to our 2010 US reserves. Then we add in the international reserves from Apco. And then finally, you see the adjusted total reserves as we look at what it would mean if we looked at a total of seven years of reserves to get to.

So our net proved reserves held strong with a 107% reserve replacement ratio, but did not move up radically, predominantly due to the new SEC five-year limit rule under which we reclassified about 250 Bcf of proved reserves to profitable in the Piceance due to reducing the pace of drilling in a lower price environment and no longer being able to get to all previously amounts within five years.

This in no way means we can't or don't expect to get to those reserves, just reclassification under the SEC rules. If you look at our net other additions and revisions, we added 528 Bcf through our drilling program in which we spent $984 million in the E&P development capital, so this equates to, in 2010, a finding cost of $1.86.

We ended the year at 4.3 Tcf of domestic proved, and adding additional international you can see raises that to 4.5 Tcf. We have also identified an additional 353 Bcf of reserves that could be classified as proved if we were allowed to add two more years of development -- in other words, seven years of development instead of being limited to five. Under this alternative view of how we would have looked at things before the SEC five-year rule was imposed, our adjusted proved reserves would've grown to more than 4.8 Tcf.

Moving on to slide 9, you can see a big move here on our 3P reserves, and moving from about 14.8 Tcf to just under 16 Tcf. And this was driven predominantly by our undeveloped leasehold acquisitions in both the Marcellus shale and the Bakken oil play.

And our drilling programs are now well diversified among some of the most economically attractive plays in the country, including the Marcellus shale, the Bakken oil and the Piceance tight sands done the Williams way.

Moving on to 10, here, as mentioned earlier, we had a 60% increase in adjusted net income for the quarter. In addition, our teams worked tirelessly to close a stunning amount of transactions in the quarter, as listed here.

We also saw our NGL production rebound tremendously in the fourth quarter after a difficult third quarter, and this represented a record for our WPZ operations. This was driven by the startup of our new Echo Springs plant, but was partially offset by the sale of our Cameron Meadows plant in the fourth quarter of 2009.

As you can see, the two large acquisitions done by WPZ are large fee-based deals with little or no direct commodity exposure. And as we've commented a lot in the past, we continue to try to take advantage when we see good fee-based opportunities to continue to steady the incomes of our WPZ investments.

The scale that we brought to WPZ through our restructuring in the first quarter of 2010 enabled us to perform these large transactions without straining our balance sheet. So we really were able to really prove the value of our WPZ transaction in a very large way in the fourth quarter of '10.

And speaking of that, moving on here to slide 11, the Bakken acquisition is a great example of the fruits that our WPZ restructuring brought forth. The dropdown of the Piceance gathering system to WPZ enabled this exciting $925 million acquisition.

Nothing new on the slide, but we have now updated guidance to include it. And other than the weather this time of the year in North Dakota, we are very pleased about our large entry in the Bakken and the Three Forks oil play in North Dakota.

We closed the transaction on December 21, and we have three rigs running there and we're certainly in the process of getting our teams assembled and getting a lot of the great experience that we have around the organization zeroed in on the opportunities in the Bakken.

Moving on to slide 12, a lot of exciting things going on here in the Marcellus, and almost too much to mention, but I will take a stab at it here. Our Transco gas pipeline group announced recently that it's executed agreements with three shippers that fully subscribe to Northeast Supply Link project on a long-term basis. These shippers included Hess, Anadarko and Williams Gas Marketing.

The Northeast Supply Link project is a proposed expansion of the Transco pipeline system that will provide about 250,000 decatherms per day of incremental firm transportation capacity from Marcellus shale supplies into Station 210 pooling point in New Jersey and even all the way into existing New York City delivery points.

Williams expects to submit its first application by the end of the year. And subject to FERC approval, the project would be placed into service in November 2013.

This is a really exciting project for us because it shows the way our midstream business can work with the gas pipeline business. The largest customer commitment for this Transco project is coming from Midstream's 33-mile Springville lateral interconnect that is to be completed now in July of 2011.

The Midstream efforts in both Northeast Pennsylvania and Southwest Pennsylvania are expected to enable the gathering of 2 Bcf per day in 2013 and 2.75 Bcf per day in 2015. So we're very excited to see the way things are growing there in both the Midstream area, the gas pipes area, and as well, the E&P area.

The notes on the E&P, we continue to see improving well results. Our Clearfield County, all their run wells are online at 2 million to 4 million cubic feet per day each. And we are in process of completing a 3D seismic acquisition for Susquehanna and Westmoreland counties, and the Center and Clearfield County shoots will begin very quickly. Progress towards building out the permit inventory, adding staff and vendors and contractors, continue there as well.

Moving on to slide 13, here we show our commodity price assumptions that support our earnings guidance. The big shift was moving NYMEX Natural Gas midpoint down to $4.25 from $5 for 2011 and raising the midpoint for our WTI crude oil from $87.50 to -- up to $87.50 from $80.

The gas is in line with the current forward strip, and the crude oil is slightly conservative to the strip, as you all are probably aware. In 2012, our NYMEX Gas was lowered to $5 from $5.40, and WTI Oil is going up from $82 to $89 in 2012. So those are just the changes that we have made from the previous guidance. And as well, the WTI there remains conservative to the strip.

Of course, the NGL margin moves up with these proposed -- with these new assumptions, despite embedding a much more conservative NGL-to-crude relationship than we saw in 2010. The actual NGL-to-crude relationship came in at 55% in 2010, and our midpoint here for 2011 is 53%, and you can see, rising up to 54% for 2012.

Our belief, and if you follow the logic here, I believe is that the NGL-to-crude relationships move inversely to crude-to-gas ratios. So as we're seeing a higher crude-to-gas ratio in 2011, we're suggesting that we should see a slip in the NGL-to-crude ratio. Despite that, we continue to show very strong margins here in 2011.

Moving on to slide 14, that commodity assumptions, then, reflect a nice lift in our guidance as well, along with the Bakken acquisition. Our earnings per share reflect some tightening of the ranges in '11 and '12, and our midpoint is being raised from $1.25 to $1.40 for 2011 and to $1.75 from $1.50 in 2012. The segment profit also is tightening; we're also tightening the range for 2011, and a slight increase in the range in '12.

The segment profit, as you'll see, moved up by a little over 7% in 2011 and about 10% for 2012. The drivers, of course, for these earnings raising and segment profit going up were acquisitions that were made in the fourth quarter and higher NGL margins that are being partially offset by lower natural gas prices.

And you also would note, if you dig into the detail here, you will note that our 2011 and 2012 CapEx are raising. Part of that is carryover from 2010 to '11 as well as increased growth opportunities in the WPZ Laurel Mountain and the Piceance growth as well. So quite a bit of new capital coming there that will continue to fuel our growth.

Moving on to slide 15, impressive adjusted segment profit growth here from '10 to '12 of 35%. The segment profit growth is made up of 31% in the other category and 79% in E&P and a 26% increase in WPZ. In fact, our other category is getting so big it's just about to earn its stripes and get a real name. So you will see notes of that in our 10-K release as well. But really very nice segment profit growth across the board for all three units.

Moving on to slide 16, talking about -- we have here $4 billion in growth capital in '11 and '12 to spend, so that is just the growth-side CapEx. And we have many more projects, as you'll see here in the next few slides, beyond the guidance period, and many speculative projects that we have not built into guidance yet.

Of course, our track record demonstrates our ability to grow even faster than our guidance. And we continue and are able to add on projects to the back end of our CapEx for guidance.

Moving on to slide 17, much of the continued spending and guidance is growing our fee-based business here. You can see within midstream, in the Marcellus, and we continue to see a big opportunity, albeit more speculative, in the deepwater services as well, as you can see there on the left. You see where the Gulf Coast G&P gets larger as a percentage of the overall mix.

So a lot of great opportunity out there, tremendous demand for midstream infrastructure, particularly in the upstream sector. And we are excited about beginning to help service the pet chem side as well as a lot of changes are coming forward in the pet chem side that are going to demand some infrastructure changes as well. And we're well positioned to help out with that.

Moving on to slide 18, our opportunities in Canada and domestic olefins continue to impress. Relative low-cost natural gas resources are creating great opportunities for the North American pet chem space, and we're very excited to be a part of it.

We're able to utilize our knowledge and access to the [Leyden] NGLs both here in the US and Canada, and very well positioned because we have $500 million of international cash at the end of the year that is sitting available to invest. So we're not going to have to raise any financing to fuel some very substantial growth in Canada.

And you can see there the projects listed on here, the Boreal NGL pipeline, which is right in the midst of construction. Remind you that construction pipelines in Canada in that part of the country really does require winter construction on the northern end because the ground needs to be frozen. And we are right in the midst of construction there.

The ethane recovery project, we continue to be excited about that. And that will add to our current services up there. That will add our ability to extract ethane and ethylene from those resources up there. And then, of course, we remain very confident in our ability to gain the other upgrader processing benefit, and we have included that here in guidance as well.

Moving on to the gas pipelines area, you can see here, really, the key message here is that there is about $1.3 billion of inventory for growth project, but the real key message is that most of this $1.3 billion, the majority comes on either in late 2012 or even beyond the guidance period, most of it even beyond the guidance period. So despite a nice increase that we've got in our guidance, we've got a very nice group of projects here that will fuel our growth beyond the guidance period.

Moving on here to slide 20, and in closing here, in the current, we exceeded our EPS guidance. We plan to take dramatic steps to unlock shareholder value. Our unmatched infrastructure and development talents provide a sound basis for an increasing flow of dividends to our shareholders. And in the forecast, we have very visible growth, supporting a 37% growth in guidance from 2010 to 2012, and in the future, a very strong case for continued growth beyond the guidance period.

Over the long haul, we have a track record of doing what is right for our shareholders, our employees and the environment. And we are very excited to continue this track record, and we have a great future ahead of us that we're all excited about being a part of.

And with that, I will turn it over for questions.

(Operator Instructions). Carl Kirst, BMO Capital.

Certainly, congratulations. If I could ask a couple questions, the first -- and I apologize if this was mentioned, but I missed it -- with respect to the higher CapEx, and maybe first here ask on the E&P side, especially as we look at 2012, we're moving the midpoint up $300 million, $400 million or so. What are the volumetric growth rates that we should be thinking about with that move up in CapEx? Does that have any shift in say, for instance, the competition that has been discussed in the recent past, getting to 25% of oil revenues in the next few years, etc.?

Carl, this is Ralph. The growth rate previously, in the previous guidance, I believe was like 3% for '11 and 7% for '12. And I think we're now at 9% for '11 and approximately 10% for '12.

That's clearly -- and the increase in CapEx is primarily because of the new acquisition in the Bakken. And we are, as we mentioned, we expect over the next handful of years and the initial press release that we will be switching more from, in 2010, from really just a very negligible amount of our revenues were coming from oil to substantially more will be coming from the oil in the future as a reflection of that.

I think we said in the initial press release back then it was within the next -- by 2013 or so, we thought it would be like 25% oil revenue. So it is clearly -- the increase is, one is our production growth is going up quite a bit the next couple years because of the new asset, and that's a reflection of the capital and also a reflection of the difference in mix we will have from almost all gas to where about 25% of that would be coming from the oil and liquids side.

Great. And then, so, Ralph, that 25%, then, is just correlating with the new growth rates?

Yes, the oil -- yes, exactly. It's just a function of -- it correlates exactly with the growth rates are higher than what we previously -- in our previous guidance.

Perfect. Alan, if I could ask one other question on -- as the other clearly is going to become more important in several different ways, how -- actually, two questions here. I noticed we've had about $300 million before this -- you've mentioned the additional processing that is coming in Canada. When do we think we will see -- is that just a matter of getting that additional capacity online, and then we will see additional volumes flowing? Is that the bottleneck, or is it the fact that we also need to sign additional capacity contracts with off-gas producers?

Well, there's a little bit of the first and a lot of the latter. The government of Alberta has been considering a subsidy for ethane recovery in the province. And of course, that's got folks wondering and making sure that they are positioned if that does happen, to take advantage of that.

And so that has got things stymied a little bit at this point. And we are hoping to see an announcement on that in the not-too-distant future. So we think that will unlock a little bit of a logjam that is existing up there right now.

Okay. But the fact that you guys have moved that into guidance, I guess, gives a pretty clear confidence that you think additional contracts to process more off-gas is coming?

Yes. We are quite a ways along on that front. But we do not have signatures, that is correct.

And lastly, and I will jump back in queue, with respect to olefins as a whole, we've obviously got some nice CapEx growth here in 2011 and 2012. Trying to ask this in a way that doesn't touch on the restructuring, but is it something where we might see that shift at all as we take an even longer-term approach, 2013 and beyond, i.e. the growth we see is more sort of near term, we do that and then go more into harvest mode? Or do you see enough petrochemical-related growth opportunities that the amount of CapEx we're seeing in the other sector right now, this $400 million, $500 million, quite frankly could continue on for several years even beyond 2012?

Well, I think there's two ways to think about that. If you think about it in Canada, again, we've got a nice nest egg there coming from our international cash flows. We've got a nice nest egg there to grow that business. And as we reported, we have $500 million of cash sitting there. And we continue to have very nice cash flows in addition to that in our Canadian business.

And so we're pretty well positioned there. And of course, we don't have any debt against those specific cash flows up there. So there's a lot of ways to fund that Canadian growth without dipping into the current WMB free cash flows.

And so -- but I would tell you that that could go on for quite some time. The ability to optimize around those oilsands up there and those vast reserves could go on for quite some time, and we're extremely well positioned up there. I think we're really at the tip of the iceberg in that business.

In the US, much smaller piece of that, obviously, but we do see a lot of opportunities to help debottleneck the pet chem space, not just our own, but others in the US. But it certainly wouldn't be as dramatic, given what we know right now, as the Canadian opportunities.

Great. Thanks, and congratulations again.

Lasan Johong, RBC Capital.

Alan, a delicate question, if I may. With the separation of the two businesses, it frees up a lot of room for capital redeployment at WMB. So in the context of that background, would you mind commenting on kind of the M&A prospects in the US and Canada for midstream and pipeline businesses and companies?

Well, I certainly think that we will have our eyes open for opportunities to aggressively grow the infrastructure side of the Company based on our strategies. But I also would tell you that we're going to remain very disciplined, as we have in the past, in terms of making sure that those are accretive and make sense for our shareholders in the long run. So, certainly would tell you that we've got our eyes open to it, but we're going to remain very disciplined at the same time.

Maybe if I ask it another way, would you be more -- will you be prioritizing higher these kind of opportunities than you were prior to the spinoff?

Well, I think we will have more currencies likely than we have had previously. So to that degree, yes.

I see. The 126 Bcfe add of reserves from acquisitions at E&P, I'm assuming that that is the existing amount of reserves that you bought, but doesn't reflect the potential of reserves that you think exists in the Marcellus and the Bakken, correct?

Yes, this is Ralph. It is. It is really a reflection -- we basically have booked a very small amount in the Marcellus as we wait for primarily the pipeline, the Laser pipeline in Susquehanna, to come on, so that is about 20 of that, and then the remaining piece of that is the Bakken.

We do -- we have said publicly we believe each of those on a 3P-type basis areas have -- each one has -- I believe the Bakken has about 1.1 Tcf, if you convert that into a gas equivalent, opportunity, and the Marcellus is about 1.2 Tcf of 3P. So we have a very small amount of that booked at this time.

Great. So we should expect to see that increase relatively rapidly as you see infrastructure get put into play, correct? Not necessarily the drilling, but the infrastructure?

Well, we never really comment on where it's going forward, but we bought a lot of problem possible reserves, and we do expect to be very successful in that aspect.

Faisel Khan, Citi.

I was wondering if you can give us a little bit of an idea of kind of -- I know you've talked about this in your guidance a little bit, but if I look at your ethane equities -- or sorry, your NGL equity sales gallons kind of over the last year or so, they were up around 10% over last year, and looks like that trajectory should continue, given the economic growth.

Are there any bottlenecks in order to continue to grow that production? Is there enough demand on the other end to kind of consume those barrels? Or is there something that we should be worried about in the future as we kind of reach the maximum operating capacity in the chemical industry?

This is Rory Miller. I will take that question. I think on -- there's been a lot of concern, I think, in the marketplace about ethane. I think we're pretty bullish still near term and probably midterm that there is enough creep, if you will, on the fracking capacity that the additional ethane will be soaked up.

So we're pretty bullish on it. We think we're in good shape through the end of the year, probably into next year as well. We will just have to watch that closely. But right now, looking at the forward, looking at the forward strip, for instance, it looks like that market is backward dated and probably well under our expectation of where we see ethane prices at the end of the year.

Okay, got you. And then if I could also just understand the opportunity in the Gulf of Mexico for you guys, I guess when you present the potential capital expenditure opportunities in midstream, one of the big parts of your pie chart is what could happen in the Gulf of Mexico.

And recently, we have seen you guys be a part of some of the tendering for you using your spar platform versus some other sort of competing technologies in the Gulf. How big is that opportunity, and when do you think we will see some development taking place on that front, given your activities there?

Yes, there is a lot of pent-up demand right now. Obviously, with the moratorium, the whole space out there has been on hold. But people have been working projects. There are a lot of projects that need to get back underway.

And the BOEM, I think, has flagged that they do intend to get people back to work. We're starting to see signs of that. So I think throughout the course of 2011, we're going to see substantial improvement in terms of producers being able to get back out and get active.

What that means to our Gulfstar product I think is very positive. We do have discussions going on right now with opportunities to deploy that. Again, we don't have anything to announce yet, but we are optimistic. And I would say looking forward, there's a significant backlog of opportunities we see on the horizon that we think are going to come into the marketplace over the next, say, 18 months as people get back to work in the Gulf.

So we see that as an opportunity probably on a kind of 100% basis, which may not be the way that we invest. We may bring on partners for that business. But that's a way to scale things up rather quickly. Most of those investments with the pipeline interconnections are around $1 billion of investment each. So it is a way to move the needle.

Okay, great. Last question for me. I was just looking for this in your prepared materials, but what was the cash balance at the end of the year for you guys? And I suspect that was after the Bakken transaction.

Faisel, why don't you hang on a second, and we will pull that up. [Precise], about $800 million. That is largely an international cash balance, some WPZ cash and a bit of Williams cash.

Okay, understood. Thank you.

Ted Durbin, Goldman Sachs.

If I can just ask about how you're thinking about the dividend, you had the raise, obviously, that you announced last night and then that you're looking for a raise next year. How should we think about a payout ratio going forward here?

This is Don Chappel. Good morning. I think you have seen our WPZ guidance, and WPZ has guided to a 6% to 10% increase in the distribution, the LP distribution. And of course, Williams will receive an even bigger increase in distributions by virtue of the incentive distribution rights that we hold.

So when we look at the cash flows from WPZ that are expected to come up to Williams -- and that is with a, I think a healthy coverage ratio at WPZ -- again, I think you saw from our guidance that at the midpoint of our guidance, the PZ coverage ratio is at about 1.2 times.

But then we take that into Williams, and that is the primary driver of the corporate dividend. And I think you can also see from, if you run through the calculations, especially ex-E&P, we get to a coverage ratio of Williams as well.

I don't think we're prepared to speak to a coverage ratio, but we do have some coverage there. And the good news is, here in 2010, we're putting some of that money back into the E&P to grow the Bakken production. So we're drilling a bit beyond our cash flows to get the Bakken started up. But beyond separation, the net excess cash flow is available for other opportunities, including the dividend that we have spoken to.

That is helpful. I guess kind of coming down to a similar question that was asked before, how much should we think about sort of a run rate CapEx that this other segment will need, whether it's growth capital, maintenance capital, I'm just thinking about corporate G&A -- how does that all factor into, then, what cash you could distribute out in a dividend?

I would say right now, we don't see any significant change in the corporate G&A. Obviously, as two separate companies, we will have some increases, and we will also look to offset that with some simplification, if you will.

In terms of the other segment, again, as Alan mentioned, we have about $500 million of international cash that is really the seed money for a lot of the growth up in Canada. Beyond that, we expect to have some debt capacity likely in Canadian-denominated debt for the next phase of growth up there.

And if we look at our credit metrics, over the next several years, we should have some more debt capacity, particularly on those Canadian assets.

What that really remains, then, is the US olefins business, and that is a fairly modestly sized business today, perhaps some expansions. But I would say the maintenance capital requirements are pretty modest. And the growth capital requirements, as you look at our forecast, in terms of our US cash balance are very, very modest.

I don't -- have any follow-up on that?

No, I think on slide 18 there, we kind of show the domestic olefins, and kind of gives you a picture for that. And as you look at that, for instance, you have to recognize that that is spread over that 2011 through 2015 timeframe. So as Don said, even in the more speculative picture there, fairly modest, not that we wouldn't like to grow that, frankly, but in terms of demand for it, this, as we know it, is fairly modest at this point.

Got you. And if I could just ask one more, could you give us a little more clarity in terms of -- you say you want to stay investment-graded at the WMB level. Are there any metrics that we can lean on that you might be targeting with that?

I would say it tends to be in the kind of 3 to 4 times debt to EBITDA range. And I think you can look at the agencies' metrics in terms of guidelines to guide you. That is a pretty simple statement that I made, but somewhere in that ZIP code.

Okay, that's it for me. Thanks.

Joe Allman, JPMorgan.

In terms of the Canadian midstream and olefins businesses, is it your plan to ultimately drop them down to WPZ?

We don't have any plans to do that at this point in time. The growth trajectory remains very robust there. We feel like we've got quite a bit of growth here in the foreseeable future domestically. And so don't see any reason to bring that complexity to our unitholders at this point.

I think it remains an option that we have in the future. And I think as Alan points out, we have so much growth right now, it's probably not a very good fit for the MLP. Plus the international tax issues related to it make it something that is more of a long-term possibility versus anything in the very near term.

Okay, that's helpful. And then in terms of your decision to IPO and then spin the E&P business versus just spinning it, could you give us the background behind that decision?

I would say that, again, given the rules, the SEC rules, there's very little we can say about the transaction. I would just point you to the press release. And we did have a desire to raise some IPO proceeds at the Williams level in order to pay down some debt and continue to have a very strong credit rating at Williams. And I think you've seen the notes from the ratings agencies, and that's the plan.

Okay, all right. Thanks. And then a question on cash taxes. What are you thinking about going forward in terms of cash taxes for E&P and then for the post-spin WMB?

Wish we could talk about it, but again, with the securities laws, I really can't speak to that. But all I can say is stay tuned.

Okay. I got one I think I can get through. So this is for Ralph. Ralph, in terms of the first few Bakken wells, what kind of AFEs are you looking at for those first few?

We're still staying in what we gave as the guidance at the time, which is a $7.5 million to $8.5 million range. What we're seeing is, now that we have taken over operations on the drilling side and we're still in the process of taking over operations in the completion and just the normal field operations, our first few wells that we have drilled are down into the lower-30-day range. Previous owner was more in the 40- to 50-day range. So we expect to be in that $7.5 million to $8.5 million, as we put in our guidance.

And we're pleased with what we have, as Alan mentioned. Early on, in this winter, there has been some, obviously, some -- a pretty severe winter, some completion delays. But on the drilling side, we're very pleased at this time and hope to have our completions caught up at some point this year.

Jonathan Lefebvre, Wells Fargo.

Congratulations. I just wanted to jump back to the distributions. And I was wondering if there is any tax shield that we should be thinking about as you received the distributions from WPZ. Just trying to understand the dynamics there a little better.

Jonathan, Williams pays tax on WPZ's earnings, our proportionate share of WPZ earnings regardless of the distribution. So from a tax standpoint, we file a consolidated tax return and it really kind of looks through the structure.

So that really didn't change Williams' tax position relative to WPZ business earnings didn't change. So I think we have said that you can probably look at the distribution to ballpark the taxes and apply something like a 30% rate on the distribution and get into the right ZIP code in terms of what the effective tax rate is on those earnings.

Perfect, thanks. And then on the IPO, I know it's very sensitive, but should we expect any tax leakage from that?

Very sensitive? Again, I wish we could talk about it, but we can't.

Okay. And then I just wanted to follow up on the MLP question. I know you answered about the Canadian assets not fitting into the MLP structure today. But I was just wondering, what about Geismar? Would that -- I know it could fit, but just wondering if you think that at some point you might look to put that at WPZ?

Well, as I'm sure you're aware, that income is not qualified income from an MLP standpoint. However, given the size of WPZ and the scale that it's growing to, that doesn't mean that we couldn't at some point. And so -- but at this point, again, we've got enough growth potential out there, we don't see a need to put that in at this time. And so -- and bring that risk to bear for us from a tax standpoint.

Fair enough. And then just lastly, I know you have plenty of capacity to increase the dividend here, and just wondering how you maybe weigh that against the opportunity to do some share repurchases and how we should be thinking about that going forward.

I would say that we think the dividend is very highly valued. Obviously, we think our stock is something that is also attractive. So we will continue to look at the options there.

I would say that right now, our bias is toward dividend. We think the market really appreciates dividend growth being kind of a long-term cash flow stream. But we will continue to look at all the options. Thanks for the question.

Okay. And then just finally, for Ralph, on the -- I noticed the mention of the Niobrara is under review. I was wondering if maybe you could give us a little bit of color around that and what your intentions are there and maybe -- I assume this is the gas Niobrara?

Yes, basically, what we're doing at this point is, is it the gas Niobrara, and that is in the Piceance basin. We have some opportunities that we've mentioned previously that we're looking to, just in our normal acreage that we have, to test some of the Niobrara and the Piceance.

Great. Thanks for the time, guys.

Craig Shere, Tuohy Brothers Investment Research.

Congratulations on the development evolution of the business and also on a good quarter.

Two quick questions. Alan, you commented during the call already and also, I believe, back in November during some of your investor meetings that you'd certainly like to grow the US olefins business, particularly to the degree it could serve as an offtaker and reduce some of the risk for ethane price volatility from PZ. But you kind of mentioned today that you don't necessarily see a lot of demand there, even though plastics pricing is going up worldwide and there continues to be the ethane advantage versus alternative feedstock.

Can you comment on that and the ability to drive down that coverage ratio that Don referred to at 1.2 times? And that I have a quick question for Ralph.

Okay, great. Craig, thank you for the question, actually, because it gives me an opportunity to clarify that.

What I spoke to demand, I wasn't speaking to really lack of demand on the pet chem side because, as you know, ethylene-derivative products like polyethylene are very advantaged here in the US relative to the rest of the world that primarily uses naphtha to produce that product.

And so as we have continued low natural gas prices here, we continue to have a lot of opportunity in that regard. And we are very excited about that space.

I would just say that we are also seeing a lot of interest by the pet chem space in moving upstream as well. And so there may be a way to reduce risk to our portfolio and leave people that are more in the business of ethylene-derivative business and exports of those products doing their expertise and us doing the upstream and perhaps in a way that partners with those parties and reduces our risk.

So that is why the capital isn't real large in that space right now, is there's perhaps some partnering opportunities that give us visibility all the way through the polyethylene, for instance, but doesn't require us to put up a tremendous amount of capital in that space.

And do you see the derisking at PZ coming from long-term contracts that are less variable-based, more fixed, or simply linked more to a percentage of oil that can be hedged?

Either one, and both of those avenues are being pursued. So I would say probably more likely, for longer-term deals, it would be something tied to crude oil.

Understood. Ralph, two quick questions. I don't know if you will answer the second one. But on the first one, it looks like, if I understood your answer to Carl's question and I'm doing the math right, on slide 11 with how much you will be spending on the Bakken, it looks like your CapEx for gas does not come down much, even though the gas strip is somewhat meaningfully lower than what was assumed in the third-quarter guidance, which I think was $5 at the time. And the production guidance in 2011 doesn't seem to show much decline on the gas expectation.

So the first question is, can you comment about your thinking and plans in terms of gas CapEx investment relative to changes in commodity prices? And the second question is whether as a part of the broader family or on your own, I just wonder how much credit the Street gives you for the 69% ownership in Apco and what you can do to kind of get that story out there.

Well, on the first side, we are basically holding this rig count that we talked about for the gas side in November, which is about 11 rigs in the Piceance and three in the Marcellus shale, growing this year to approximately six probably at the end of that year in the Marcellus.

We did drop three rigs from the Barnett. We're down to one. So we have changed that around somewhat. We still think in those areas that we're drilling in, which is primarily the Piceance and the Marcellus on the gas side, we feel very good about our returns there. So we're comfortable with that.

And going forward, obviously, as we get our hands more and more around the Bakken side of the world, to the extent that we can and build our inventory, permitting, get our staff up there, we will probably look to, when the time is right, to shift those resources from the gassy side to the oily side.

So we have -- at the November call, you might recall that we did drop about 10 rigs from what we previously thought we would be doing on the gas side. So we've already taken a pretty big cut at that.

As for Apco, we continue to have a number of successes in Apco that you've seen in the past. And we will just be able to talk about that somewhat when we go through the process. But you have seen that we have some slides out there now that talk about the concessions we have, both in Argentina and the new concessions in Colombia. And that is just something we will be able to talk about when we get through this process.

Great. Thank you.

Kevin Smith, Raymond James.

Congratulations on the quarter. In the past, I guess you guys have talked about the communication flow being a consolidated company, having all these -- the different aspects and how you're able to jointly develop projects and the synergies from that.

I don't know if we're getting too sensitive, but how do you see communication flow past the breakup?

Well, I will take that. Now, first of all, it certainly has been between -- particularly between midstream and E&P a lot of opportunities for midstream to kind of be ahead, and as well for midstream to help the E&P group get fair value for their liquids as well. And so on both fronts, I think there has been benefit there. So I wouldn't sit and deny that.

Certainly through the IPO process, and as long as it is a controlled subsidiary, there is no reason that we would lose that. But ultimately, in the spin, we will have to work hard to maintain the good relationships. And that is certainly our goal as a management team right now, is to maintain the good relationship and continue to be able to enjoy that to the degree that we can legally.

Fair enough. Are there any gathering contracts or anything that will have to be kind of split out, or is all that stuff already separate?

Because we have WPZ holding most of our domestic midstream business, most of that is squared away pretty well, so not any major deals at all. There will be a little bit to clean up here and there. But for the most part, it is taken care of because we already had the separate WPZ entity.

Okay. And then one last question. When do you think you will be able to talk about the Bakken wells that you're drilling now?

This is Ralph. We probably will have, I would guess in our next call, some more update on that. We closed the deal December 21, have just now, as I mentioned, taken over the drilling side, and we have our staff in place.

We have been blessed in the new Marcellus team and also the new Bakken team that we've been able to pull from resources in the Piceance, the Powder and the Barnett and bring a lot of expertise to each of those teams.

So we're in the game right now, and I would guess that we will start giving some updates at the next call. And everything we have seen so far is what we thought it would be. So we're very pleased with that.

I think we have, as Alan mentioned and I mentioned, we have a little bit of a completion backlog, as I think most of the industry does up there. But with our relationship with our vendors and nationwide, we think we will be able to overcome that delay.

Okay. Thank you very much, gentlemen.

Holly Stewart, Howard Weill.

Just really one quick one for Ralph. And Ralph, you've done several acquisitions here to sort of right-size the E&P business, as we would say. Will you be looking to high-grade that business?

We always will look to high-grade the business. We have, as we're speaking right now, we do have our Arkoma positions for sale, if you will. But going forward, Holly, as we look at anything, we will always look to make sure our portfolio is bringing the returns we want. And we will just handle that as we move forward in the process. But we always want to make sure our portfolio is contributing.

And you've dropped -- I guess you just mentioned you dropped two rigs up in the Barnett. So what's -- I mean, is that just related to pricing right now, the economics, or -- I mean, I know you guys have had some permitting issues. Just trying to think about the value of the new co-E&P here going forward.

It's really just a function of there have been some delays on the facilities side, and we have better places -- because of that, we have had better places to take our capital right now.

Okay, great. Thanks, guys.

Lasan Johong, RBC Capital.

Thank you for taking the question; I apologize. Just as a last question, on the separation, can we assume or is it a good policy for us to assume that WPZ would enter into additional midstream and pipeline contracts with new E&P in the Marcellus and the Bakken prior to the actual spin?

Yes, I really don't think we would be able to comment on that. But I would just say that in a business as usual, where it makes sense for both parties and economically, we would continue to drive those kind of values for the Corporation.

I see. Thank you very much.

Now I will turn the call back to our speakers for any closing or additional remarks.

Okay, great. Thank you very much. Appreciate the great attention this morning and the great questions. And we're certainly very excited about our future and hope you are as well, and feel like we, again, as I mentioned, we feel like in the current, we're certainly delivering. In our forecasts, we've got great growth, identifiable growth. And in our longer-term future, we remain very excited about the prospects. So thank you again for joining us this morning.

Again, that does conclude our conference. Thank you all for your participation.