威廉斯 (WMB) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to the Williams Companies, Inc. third quarter 2012 earnings release conference call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. John Porter, Head of Investor Relations. Please go ahead.

Good morning and welcome. As always, we thank you for your interest in Williams. As you know, yesterday afternoon we released our financial results and posted several important items on our website, www.williams.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 our President and 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, Frank is here from our Gas Pipeline business and our CFO, Don Chappel, is also available to respond to any of your 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.

Thanks, John, and good morning, everyone. First, let me wish everyone who has been affected by hurricane Sandy the best of luck in the recovery. As you know, given the significant disruption that occurred to the normal market activity, we decided to delay our earnings release webcast by a day. We also know this concentrated a number of earnings calls today, so thanks a bunch for joining us this morning for this webcast, amongst a very busy morning. Hopefully you had a chance to listen to my prerecorded comments released yesterday afternoon, but just in case you didn't, I will quickly hit on some key themes, and then we'll move on to our Q&A session. We have several really important items to communicate to you this week starting with, of course, a review of our third quarter performance, so I will quickly touch on the key things from that discussion.

For the third quarter, WMB's adjusted income was up about 17% over second quarter, in spite of NGL frac spreads that were about 18% lower on average than the already low, two second quarter amounts and the impact of hurricane Isaac. I will talk about that in just a little bit. With regard to the NGL frac spread, we saw about a 9% lower average NGL composite price, but an even higher impact from natural gas shrink prices that were up about 26% on average. So, certainly the frac spread environment that we saw in the third quarter continued to decline from what was a heavy decline from first quarter to second quarter, and so we were not expecting that degree of decline into the third quarter and, again, a lot of that was impacted by gas prices moving up.

Turning to fee-based revenues now, for third quarter, this measure grew about 5% per year-over-year for the third quarter, and importantly, at the Midstream segment for WPZ, this created about a 12% rate. So continued great volume growth there in our fee-based revenues and just to highlight a few of the areas that affected that. Our gathering volumes in the business, so this is our natural gas gathering volumes in the Midstream business, were up 17% higher from 3Q '11 to 3Q of '12 and in the Eastern onshore, which is basically our Marcellus area, and the Perdido Norte, which is in the Western Gulf of Mexico, we saw both of those areas gathering volumes actually double from year-to-year. The main driver of the 12% growth rate for -- overall for our business was the Eastern GMP business, as I mentioned, and, of course, one of the drivers there was the acquisition from the Caiman, which we now refer to as the Ohio Valley Midstream, in our business, and that was up about $30 million between years.

Also, there was a couple of factors that brought that 12% growth rate down and tend to lessen it. The hurricane Isaac reduced some of our Gulf Coast fee-based revenues, and in third quarter of '11, we actually had a pretty significant contract settlement related to some of our Perdido Norte business, so on a normalized basis, we see these fee based revenues actually growing even stronger than the 12% for the WPZ Midstream. Most of the hurricane Isaac impacts were caused by interruptions in third party operations, so while we did have some immediate interruption in our offshore assets, in particular, in terms of getting things back up and running, it really was due to some downstream oil terminals and some downstream NGL pipelines that held us up a little bit longer. So we really did fare pretty well against our assets, but there were some assets that were integrated with -- that were a little more challenged.

Hurricane Isaac also significantly impacted our results in the Midstream Canadian and olefin's business, as Geismar had down time that affected its production volumes, as well as some damage to a furnace, as we tried to restart the plant after the hurricane. So all in this affected our settlement profit from about $9 million to $13 million, and about $4 million of this was treated as an adjustment for adjusted settlement profit. So, that is a quick look at our third quarter drivers, but again, given the continued lower NGL commodity price environment, and the Hurricane Isaac impact, we actually had a pretty good operational period here for the third quarter.

So next up, we have some important updates to our guidance for '13 and '14 from both WMB and WPZ, included in these updates are the effect of the Geismar drop down, which we've announced we'll be closing very soon, but we've also got some other adjustments, including somewhat lower revenue growth rate assumptions for WPZ, and these are really being driven by prolonged natural gas price assumption and some of the producers' reactions that we're seeing to that, as we went through our September planning process, where we take in a lot of the input from a lot of the our producers around our systems. And I certainly want to let you know this really is across the board. That we're seeing this in areas that, whether -- where we may, where the producer themselves is heavily impacted by the gas prices. So some examples of that would be areas where we hold the keep whole rights for natural gas drilling operations and so the producers are not enjoying any of the uplift from the NGLs and so, of course, they're responding to lower natural gas prices. Those, of course, would be mostly out West where that would occur.

We also had some response in the Gulf Coast and then to -- and to some degree in the Northeast, but we'll get into a little bit in the Northeast. The good news, I would say, in the Northeast, is that the activities continue there and for the most part, the activities, particularly in the Ohio Valley Midstream area, really have nothing to do with either prices, or with the drilling, or results from the resources. Actually, those are coming in a little better than we thought, it's really just a delay in terms of the activity and our ability to get infrastructure into place there quickly. All in all, I would say that the environment's pretty good, but I do think with our gas price assumption at $3.25, it's in our assumptions, and planning around that, we do expect continued reduction in areas that are totally dependent on just the natural gas price. I do want to reaffirm our plans for strong cash dividend growth, where we're expecting a 55% higher dividend in 2012 with WMB, and as well, the 20% growth in each 2013 and 2014, which would move our dividend to $1.20, $1.44, and $1.75 respectively. Our stated policy of paying out WMB dividends for all of the distributions WMB receives from WPZ, less taxes, corporate interest, and corporate Cap Ex; however, we also want investors to appreciate how committed we are to sustaining the great strength of WPZ for the long run, and, of course, that is what the Geismar drop down is all about, and I think really shows the evidence of WMB's commitment to keeping WPZ healthy and making sure that the commodity heads, the natural commodity heads there, are shared with WPZ and not just held at the WMB level.

So, in that transaction, WMB is receiving nearly 43 million new WPZ lp units related to the Geismar drop down, assuming a strong WPZ cash distribution growth rate included in our guidance, WMB will see a significant increase in cash distributions from WPZ. This could result, of course, in an ultimately higher dividend growth rate from what we have forecasted right now for WMB, and certainly if the forecasted pricing environment that we have out there, particularly around ethylene prices occurs, then we would certainly be in a position to further increase the dividend at WMB. So, a lot of questions around that as a lot of people have snapped to the fact that our cash distributions will go up significantly from that, and we certainly have been clear that we intend to maintain that policy. And I think our response to that as we certainly agree with that calculation, but we do have quite a bit of risk embedded in that pricing at WPZ, and so, we don't really want to go out any further on that distribution being two years ahead of time, in terms of the dividend at WMB.

I do think we intend to be very sure and really work hard to maintain the distribution growth rate at WPZ, however, and some of the activity -- some of the things that we might respond to, if we did see a commodity collapse, it would pull that coverage ratio down of course, would be our ability to impact the GP IDRs that we receive. We remain very committed to WPZ and the health of WPZ and we think we have got a great model. And certainly, if the pricing environment occurs, we are going to be in great shape to continue to increase that dividend at WMB even further. Of course, at the same time, WMB will no longer enjoy 100% of the cash flow and earnings it enjoys today. And as a result, you have seen a lowering of WMB's income guidance related to the non-controlling interests that arises in Geismar once it's dropped into WPZ. Even though the cash flow piece of that looks stronger, particularly with the capital burden being shifted over to WPZ, the earnings piece of that gets diluted by the issuance of -- to the WPZ lp unit holders.

Additionally, as I previously mentioned, we have some other updates to our guidance for '13 and '14, including lower revenue growth rates across most of our operating areas that are exposed to natural gas prices, as I mentioned. And although we have some fairly low natural gas price assumptions in place for '13 and '14, you really should not misconstrue that. That we have a lack of confidence in the natural gas market, and in fact, I would tell you, we are fairly bullish about the long-term demand that we continue to see build for natural gas, but we also have been impressed with the capabilities of natural gas producers here in the US to continue to lower their cost of production and so, we're balancing that. We do think it will take some time for a lot of the big capital that is coming on to build that demand, but long-term, I would tell you, we're very bullish on seeing this natural gas market continue to expand.

Finally, in the prerecorded podcast, we provided additional information about exciting new developments in our Canadian and Pitkins services businesses and updates on all of our in-guidance projects, most of which are fee-based, that really continue to demonstrate how Williams is perfectly positioned to take advantage of this long-term super cycle as a trusted name in the development, construction, and operation of exactly the types of infrastructures needed to realize the full potential for producers and end-users for natural gas, NGLs, and olefins.

With that I will open it up for your questions.

(Operator Instructions)

Faisel Khan, with Citigroup.

Thanks. Good morning. I didn't understand the lower guidance in '14. I just want to understand a little bit more, if you could, and I have a followup question. But on the guidance, it seems like your commodity price assumptions are roughly the same from the last time you issued guidance, and so, the decrease in earnings seems like a meaningful decrease in volumes. Can you elaborate a little bit more on what the volume decrease you expect in '14 versus your previous guidance? And I understand it's because of low natural gas prices.

Right. And I would just say this, Faisel, that really what we saw, again, how our planning process works, is that we start to pull that together in September, and we take in input from all across our systems from producers' planned capital for the following year. Of course, it's in their best interest to have us educated on their plans as well, because we have got to go build a lot of the infrastructure for those volumes, and so we've been going through that process in September. And I will just tell you that it's really across the board, and I would tell you, if we thought gas prices were going to be $4.50 or $5.00 in '13, then we probably would have had a different perspective on that, but with our assumption of gas prices being at $3.25 for '13, with that assumption embedded, we would have a hard time being more bullish than the producers in terms of their capital plans. And so, we really, basically, took the capital plans from producers.

Now, remember, this was -- a lot of their ideas, of course, were formed over the summer when gas prices were even softer, so if we do see gas prices rebound, we probably would see some more activity and more rigs picked up. But of course then we would have to raise our gas, natural gas price, if we believe that, and that, would of course, would come out of the margin for both the NGLs and the Olefins margins.

I think there is a good balance there, but in general, I would tell you that, we gather a lot of gas and there are just a lot of areas that are exposed to natural gas pricing. We're seeing drops in really all of our regions from what we had forecasted earlier in the year based on producers' forecast that we would have picked up in the first part of 2012.

Okay. Fair enough. On the olefins business and the chemicals business, how are you guys thinking about the distributions at WPZ once you drop these assets in? Will some of the distributions be a little bit more of a variable rate or will they -- if we have some base level of free cash flows that will be distributed to unit holders and then the rest will be kind of discretionary, sort of, use of capital? How are you thinking about this cyclical business within WPZ?

Yes, it's a great question, and I would say that we do feel like we will need to maintain a coverage ratio there. Of course one of the things that is heavily impacting our coverage ratio at PZ right now, is the amount of growth and amount of equity that we have issued here in 2012, and so, I would say that in a more normal environment, with not quite so much leverage to growth in that balance sheet, that we would expect to be seeing higher coverage ratios, despite even lower NGL prices that we saw here in the third quarter.

So, bottom line is, we intend to maintain a coverage ratio there at WPZ, and try to let the swings -- the good news is that there is a lot of cash flow in WPZ, and we would expect to let that coverage absorb a lot of those swings. If that was not enough to absorb that, then our next move in a more dire environment would be to waive some of the GP IDR if necessary, to maintain WPZ's health.

Okay. Thanks.

Bradley Olsen, with Tudor Pickering.

Hi, good morning, everyone.

Good morning.

Just to follow up on Faisel's question, about the volume growth assumptions that go into your guidance, how -- you mentioned kind of broadly lower gas volumes across geographies, would you say that this volume change is enough to impact your longer-term 5 Bcf a day estimate in terms of gas that you handle in the Marcellus?

It certainly could in some areas. I would tell you the areas that are the drier gas are most likely to be the larger part of that impact. On OBM, I would say there might be some delays there, but currently, we're actually increasing that a little bit above, in the near-term here, from what we had in our September, sorry, in our June forecast for that. It's really those areas that are just dependent on dry gas volumes and OBM, I would say, to the degree that is lowered a little bit, that is going to be from just delays in getting the infrastructure and the drilling activity occurring there. But we certainly are very excited about what we continue to see in the OBM area in terms of the producers' economics, and their activities, and the resource there.

Okay. Great. And as far -- in the Midstream side of the business at WPZ, it looked like the OpEx, which had ticked up in the second quarter, was kind of flat sequentially. And I was wondering if there are items in there which are transitory in nature or whether we're looking at maybe a kind of higher go-forward operating cost in that business?

This is Rory. I would say for the near-term, across Midstream, on operating expenses, we're probably pretty flat with '12, and so in terms of thinking about a run rate, and that is probably a comment that I am making for '13, but we're expecting to be fairly flat with '12 for '13 and then after that, there may be some growth.

Great. Thanks. And just one last question, could you -- I realize that some of the petrochemical pipelines are making their way down to PZ in conjunction with the Geismar dropdown, but are there -- are there additional assets as part of this Exxon asset package that you have acquired, which will remain at WMB for the time being? And maybe if you could just give a breakdown of what percentage of those assets sit at PZ versus MB, that would be great. Thank you.

This is Don. I can just mention that the assets that we announced, the petrochemical assets we acquired from Exxon, will be owned at the Williams level for the time being. We felt that Williams had more financial capacity to hold those assets while they're being developed than PZ did, given the already large array of growth opportunities that PZ was holding. So that was the primary reason we moved that to Williams rather than WPZ, but that remains a dropdown opportunity that PZ will likely enjoy at a future date.

Great. Thank you.

Ted Durbin, with Goldman Sachs.

Thanks. Maybe just thinking about the commodity exposure here at the WMB level and the increase in investments in Canada. I am wondering how you're thinking about the mix of maybe adding more commodity sensitivity with those additional investments, rather than -- and kind of how you're thinking about what the cash, otherwise you could do, if there are tax issues with bringing it back and maybe that is part of the reason why you're driving more investments in Canada?

Just -- this is Don again -- I would say that again, for us to bring back $500 million, our cash tax rate would be about 50%. So about $250 million of that would be paid to the IRS, and that's pretty -- a lot of value leakage. And the good news is, we have some opportunities in Canada that we think are very strong with very high rates of returns, so if we look at that versus the opportunities here in the US, we just see, despite the fact that there is some commodity volatility, we just have higher hurdle rate on those projects, such that even in a low commodity price environment, they're still very attractive investments, and in a more of an expected case it's very strong.

When you compare that to, paying all of that cash tax, and bringing it back, and investing in an opportunity here in the US, the Canadian investment, despite the fact that it's in commodity sense of the businesses, tends to be something that we're interested in, I think. The one area that we're exploring is PDH and, again, we think that propane in Canada is likely to be under tremendous pressure, and the margins from that business will likely be very strong.

Okay. Thanks, Don. That is helpful.

I would add to that on the -- this is Alan. I would add to that as well, that the -- for instance, the CNRL business, ethane contract that supports that, does have a floor for the ethane that is at a cost-of-service pricing for the ethane. There is some contractual support for that risk that we are taking in that expansion up there, for both the new ethane capital that we are investing, as well as the CNRL expansion.

Great. Got it. That is great. Can you talk a little bit on the price that you came to for Geismar? You could argue that it's something of a low multiple for WPZ to pay. How your thinking was coming to that price?

Sure. I think the multiple is always dependent on the amount of pricing risk and where you are, at a peak or trough, and certainly that is a build out of a business. Today's pricing, of course, if it was a steady, already-existing asset that didn't have a lot of growth in it, would deserve a higher multiple for those more sure cash flows. But I think with the pricing assumption -- we -- that is our best guess at the pricing assumption that is out there, but nevertheless, that is a peak relative to the market and so we don't think we deserve such a high multiple. A lot of, as you can imagine, a lot of interesting debate amongst the Conflicts Committee for WPZ, and it's -- the folks that support that, as well as internally here, but we think we really hit the right spot for both WMB and WPZ in that transaction.

Sure. And then you touched on it a little bit, but maybe talk through a little bit more of your assumptions on the price for custom, particularly interested in natural gas at $3.25. It looks like the floor curve is closer to $4.00 for '13, and then on ethylene, you have got this big jump in '14, going from $0.50 a -- pound, excuse me, to $0.63. What is driving both of those forecasts in your guidance?

Sure. On the gas price, I will hit that first, and I think gas price yesterday is coming off for the year about $3.90 or so for '13, and of course, that has been moving around quite a bit. I would just tell you, we certainly hope that. We think for the health of the industry, that is a good thing, but we are continuing to see supplies grow. And, in fact, our forecast of lower volume rates, is not showing up currently in our growth rates. It is continuing to grow. So, we think that a lot of the demand that we picked up over the summer, obviously, was very price dependent growth, and you can argue whether that price is $3.50, or $3.75, or $3.25. You can argue as to where that price that kicks coal out and brings gas in, but it's certainly not $4.00 from our vantage point. I think -- we think that low that we saw in the natural gas price is pretty temporary and is very price-driven. So, we continue to be impressed with the kind of drilling and growth around our systems as we sit here today, but we think eventually that has got to moderate, and obviously, that is our reaction to it.

On the ethylene price, I would just tell you that the -- what we saw in the -- what we continue to see is really response between crude oil and ethane. As you get into '14, we're actually completely or almost completely, neutral to ethane prices and, in fact, a little bit short ethane. If our ethane price is wrong, that will just show up in ethylene price, but we are really just driving that ethylene price off of CMAI forecast and oil prices. That is the best intelligence that we have based on the markets that we're seeing out there.

And that is it for me. Thanks, I appreciate it.

Craig Shere, with Tuohy Brothers.

Hi, a couple of questions. First, I apologize, there were some competing calls today, but I just want to clarify, the $600 million segment profit plus DD&A for the dropdown, is a proportional number?

Yes.

Great. And Don, can I stay with you for a minute? Speaking of taxes that have been discussed. Can you speak to what the tax rate might be on the LP distributions from PZ? Would that be changing at all with the Olefins dropdown? And also, would there be any potential, over time, as you invest more CapEx and get more depreciation in Canada, for that 50% tax you alluded to, to come down?

I would say that our cash tax rate moves around a bit, depending on when assets were placed in service, minimum tax, a lot of variables there. It moves around a bit. I think, from a planning standpoint on this slide, we have it here in our dividend illustration. We kind of normalized it about a 25% rate on the distributions from WPZ. Some years will be higher, some are lower. We've normalized it there for -- to take some of the volatility out of it.

I would note that when we issue equity, including in the Geismar transaction, our effective tax rate goes up, because in effect, to the extent that we issue units to the public, there is an embedded gain there from a tax standpoint. It's a pretty complex subject, but I think the way we have modeled it here, I think is, generally representative with some volatility. I think you will see some years that could come in, sub 20% and some could approach 30%. As to Canada, we have got a negative basis in our foreign assets, and so the issue there is to bring cash across the border, with the trigger gain, and that is a pretty substantial gain at this time.

It's -- since they have never been taxed with US authorities, when you reinvest money into new projects in Canada, do you get credit for that when you bring it back?

No. I mean it comes down to tax bases in all of our international assets. Again, we have got some legacy European and Venezuelan tax positions, so it's a big ball that includes a lot of legacy stuff. So, it's going to take some time to unwind that. There is -- we do have an embedded 25% tax rate in Canada, so we are providing taxes and paying Canadian taxes, at about a 25% rate on Canadian income. But it's really that cash balance that we have sitting in Canada, or the cash that we might generate, is still working against the negative tax bases.

Okay. And my last question, Alan, there were some questions around the changes in expected gathering with natural gas volumes. You alluded to trying to be a little conservative, especially as maybe CTG fuel switching eases off a bit, and suggested that some of the numbers may change if you're [rawing] to the high side, maybe the volumes will be greater.

My question is, many producers that have alternatives are saying even at $4.00 gas, they're not going back and turning on the spigot, because they make just so much more money on the liquids part of the plays that they have, that there is a limited amount of capital, and they just can't see putting it towards dry gas. You all have mentioned, even in the Marcellus, that some of the prolific dry gas areas are easing off, even though there is probably very respectable returns at some of those very good wells today. Can you speak to whether you really think the volumes will necessarily follow price?

Well, (laughter) that is a great question, and one that we obviously wrestle with around here on a regular basis. And I honestly think it is very dependent on producers' capabilities; certainly not all these basins are created equal. There is quite a bit of differentiation from one, even in Susquehanna County, I will tell you, there is a pretty big spread in one part of the county versus others. And as well, I would tell you, that some producers are better than others at getting their costs down. And as well, there is a major variability in terms of what their other options might be and what they're invested in.

I would just say it's not as -- the market is not perfectly efficient in that regard. It is remarkably, from my vantage point sometimes. I always marvel at how efficient it is, particularly this summer, the kind of pickup we saw with low natural gas price on the demand side. But in the producer side, it's not -- not everybody has the same number of options about where they might take their rigs, and some are more invested than others, in getting their cost structure down in an area.

We certainly saw that with our previous ownership of WPX in the Piceance, where they had a very low cost structure in the Piceance, and we certainly see that in the Marcellus with some players having a much lower cost structure and lower cash costs than others. I will just tell you, it's pretty variable out there, and I think it's hard to draw it with a broad brush, and so that is not the way we do it. We do it from a -- building it from a ground up perspective, based on all of the different input we get from producers in each of our areas, and that is really how we've come up with that.

Understood. Thank you.

Sharon Lui, from Wells Fargo Securities.

Hi, good morning. Just wanted to get your thoughts on what is an appropriate coverage ratio for WMB and WPZ longer-term? Are you thinking about, I guess, the figures you outlined in 2014? Meaning 1.2 for WMB and 1.1 times for WPZ?

Sharon, it's Don. I would say it is a complete function of business mix, and commodity prices, and the growth rate, because, again, as Alan mentioned earlier, in the near-term we're burdened with an extraordinary growth rate. We're financing a lot of growth, and that means more units out, more interest expense with little cash flow. But, if you look at '14 and you look at the ethylene price, you can vary that ethylene price and you are going to get a lot different coverage. You can move gas price, and you are going to get much different coverage.

I think it's really a function of what you assume on prices. So, the 1.23 is built off the price assumptions we have here, price and margin, and all the other assumptions. If you have lower-margin assumptions, you will get lower coverage; if you have higher, you will get higher. But, again, I think it's going to be variable, coverage will be variable, based on where we are in a commodity cycle and a number of other factors.

Okay. And then, I guess, looking at your 2013 guidance for the low-end, are you comfortable at this point, in terms of continuing to deliver growth at WPZ in distributions and have a negative coverage, given the cash flows visibility in 2014? Can you maybe just talk about that?

I would say, we still have positive coverage in 2013, based on our guidance, so, yes, we are comfortable. Obviously there are business risks, including commodities, that we'll face, and there are upside opportunities, but, at this point, we're comfortable with our guidance as being what we're certainly targeting, and we think that it's realistic.

Okay. And I guess the last question is, any operational impact of Sandy on your Northeast operations at this point in time?

Frank, do you want to take that?

This is Frank Ferazzi. I will take that question. We did lose purchased power in many of our compressor stations in New York and New Jersey, and parts of Pennsylvania, but at those stations we have backup generation capability that is powered by natural gas. So there is no disruption to flows. We do have our LNG facility that is located close to the water, and we anticipated we might get some minor flooding, and that did, in fact, happen. In anticipation of that, we took the facility down on Sunday. We did, in fact, get some water, but once the facility dries down and we pump a couple of feet of water away, we're not expecting any permanent damage there. No leaks on the system; no other disruptions in flow. And so I think, on balance, we fared remarkably well. We are going to have to remove some trees from the right of way. Some fences were blown down. But, again, no permanent damage to the facilities, and no disruption in flow.

Okay. Great. Thank you.

Thanks.

Becca Followill, with US Capital Advisors.

Morning, guys. On the gas pipelines, it looks like the EBITDA is a little, or the EBIT is coming in a little bit lower than, at least we were expecting, despite some double digit increases in throughput. Can you talk about what you see going on in that business? And then, just given where you are year-to-date, do you still think that you're going to meet the low end of your guidance?

Yes, Becca, this is Rick Rodekohr. In the third quarter, we did see some higher expenses at our gas pipeline. Those were driven principally by the Pipeline Safety Act. As you know we have to complete testing our system by the end of the 2012, so we're certainly on track to do that, but as we get near the end of that period, we did have some higher integrity and testing costs that we did see in the third quarter. And then we also saw some higher benefit costs related to our pensions and our post retiree medical expenses. Those were the primary drivers, I think, of the lower results in the third quarter. We are on track to hit the guidance that we have given for 2012.

That would imply a really big fourth quarter of close to $200 million versus $178 million a year ago. What is really driving that?

Well, we have some additional revenues from expansion projects that we put in service earlier in 2012, so, we'll get revenues from there. And then we do have some projects that we look at expensing those dollars until they reach a level of probability, and to the extent that we have some projects that move down the development path, we would have some opportunities to reverse some expenses there as well.

Got you. Thank you. And then on the Caiman Utica JV, any status updates on that?

This is Alan. I would just say there is a lot going on there. We're not positioned to announce anything new on there, but I'm very pleased with the opportunities that are coming forward on that. So, stay tuned on that.

Thank you. And then on shared services, you guys talked about a new shared services undertaking in your second quarter 10-Q, and then had a charge for reorganization in the third quarter. Is there more to come on that? And what kind of benefit do you see to Williams as a result of this?

Great question, Becca. There has been a lot of efforts around the organization on that, and frankly, we were responding to overhead cost as one item that came at us from the spinoff of WPX, and so we're trying to make sure that our overhead costs are in line with the size of the company and the complexity of the company today. And, so we are going through a process of taking out some layers of management across the organization.

But as well, I would tell you, very much on the positive side, we are bringing a lot of alignment and a lot of focus around our engineering and construction capabilities, as well as getting the customer voice from all of these various areas, right up to the leadership table and getting that as close to our actions as possible.

So, a lot of very positive things coming out of this, where we're really trying to get more of our resources focused on our areas of opportunity, and when I say that, I'm talking about people resources that are really focused on where our front line opportunity is. Whether it's growing out our business on E&C side, or being able to be very responsive to customers' needs as this infrastructure build-out continues to really amaze us, in fact, in terms of the amount of demands and opportunities that are in front of us. We're really trying to position the organization to be more responsive to the kind of build-out that is ahead of us, and we continue to enjoy.

Do you have a financial impact in terms of incremental savings or incremental costs?

We have not -- we don't have a final number to put forward on that yet, Becca.

Okay. Thank you. Finally, on EBITDA guidance, it looks like the base business is coming down, and you talked about the gathering volumes, but we're also seeing CapEx for the base business come up once we net out the numbers for Geismar. What is that higher CapEx related to on the base business?

Is this on WPZ, Becca? I didn't follow you.

Yes. Yes. You know, if you want, I can wait and ask it on the PC call.

We'll get back to you on that, sorry.

Okay. Thank you, guys.

One item there, Becca, that I think of, that is in there, is the [gumbo] acquisition, and the capital that is driving that is a piece of that at Williams. And so --

Some of it is timing, that we have shifted some capital from '12 to '13, and the timing of some other projects has moved around as well. And so we'll dig out the detail here and advise you, if not on the call, after the call.

Okay. Thanks, guys.

Thank you.

We'll take our final question from Carl Kirst, with BMO Capital Markets.

Thanks, good morning, everybody. Just a quick question on the petchem pipeline initiative, and I guess my question is, since you guys have somewhat of a first mover advantage here, as we look at the return profile of that capital being deployed, should we be looking in the sort of -- is there a turn profile of a normal, kind of fee-based, contracted pipeline asset or is there the opportunity to earn perhaps significantly higher returns for that capital?

Yes, Carl. Good question. I would -- we didn't get a -- given all of the other moving parts we have had in this earnings call, we haven't had a chance to focus very much on that, but I think we've forecasted that in the past in terms of our bullishness around the need for infrastructure as the petchem business grows out from all the new NGLs coming into the market there, and we are more convinced than ever that that is the case and there is going to be a lot of infrastructure.

We have made three acquisitions from pipelines that we are converting the service on, here in the last 10 months or so, and have been doing that fairly quietly, as we want to make sure we have got the business contracted for that business. But in terms of return expectations, I can tell you that it does vary according to risk, but I would say probably on average, it's between about 14% and 20% pretax returns on those capital investments.

Great. Appreciate the color.

We have no further questions at this time.

Okay. Great. I will close it up here. Thank you all very much for joining us. Very excited about our future. A lot of moving parts happening in this quarter. And I want to reiterate that we are very committed to maintaining the health of WPZ, as I think we have demonstrated with the Geismar dropdown, and, frankly, you know, as we have been forecasting for quite some time, we were concerned and have been concerned about the ethane supply getting out and ahead of the cracker capacity. We certainly think our Geismar expansion is very timely, and is going to be able to take great advantage of new ethane supplies, ahead of any of the other cracker expansions, but we think eventually the petchem market is going to respond to the huge amount of NGLs that producers are going after today.

We're excited to be in this space and excited about the growth opportunities that are out for us, really across the board in our business today. So, really feel very good about the growth prospects that lie before us in the Company, and we have got a lot to execute on but very confident in our team's ability to do that. So, with that, we will close it up. And once again, thank you very much, and good luck in your recovery if you have been impacted by Hurricane Sandy. Thank you.

This does conclude today's program. You may disconnect at any time. Thank you, and have a great day.