威廉斯 (WMB) 2014 Q1 法說會逐字稿

Good day, everyone. Welcome to today's Williams and Williams Partners first-quarter earnings conference call. Today's call is being recorded. At this time I'd like to turn the call over to Mr. John Porter, Head of Investor Relations. Please go ahead, sir.

Thanks, Melanie. Good morning and welcome. As always, we thank you for your interest in Williams and Williams Partners.

Yesterday afternoon we released our financial results and posted several important items on our website, www.williams.com and www.williamslp.com. These items include yesterday's press releases with related schedules and the accompanying analyst packages. The slide deck that our President and CEO Alan Armstrong will speak to momentarily, and an update to our data books which contain detailed information regarding various aspects of our business.

In addition to Alan this morning we also have the four leaders of our operating areas with us. Jim Scheel leads our northeastern G&P operating area. Allison Bridges leads our western operating area. Rory Miller leads the Atlantic Gulf area. And John Dearborn leads our NGL and Petchem services operating area. Additionally our CFO, Don Chappel, is available to respond to any questions.

In yesterday's presentation and also in our data books you'll 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 we reconciled to generally accepted accounting principles. Those reconciliation schedules appear at the back of the presentation material.

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

Great. Thanks John, and good morning to everybody. Thank you for joining us. Certainly excited to be reporting another great quarter and really on all key measures.

But before we dig into the quarterly results, I want to remind you that we remain very committed to our natural gas focused strategy and we continue to have -- and this strategy really continues to have us right in the middle of some great opportunities. And really, we couldn't be more excited about the way we're seeing the tailwinds build for the opportunities that we've positioned ourselves for.

This has certainly been a wave that we've been seeing building for quite some time and we think we've got ourselves in the perfect position to catch this wave. And certainly as we see a lot of our major projects start to come on here in the last half of this year, and really for many years to come, we've got a tremendous wave of great projects that we've been working so hard on to get out in front of.

So we certainly see it, the wave, building here in first quarter. And through our guidance period and then well beyond. And we look forward to talking about that well beyond, certainly at our upcoming analyst day.

So we are also well-positioned to return this value to our shareholders, for many years to come with our industry-leading dividend at WMB and as well our solid and very visible distribution growth at WPZ.

So today we'll talk about key measures for our first-quarter results. We'll talk about the continued project execution and development that we've got ongoing, discuss the drivers for our 2014 and 2015 guidance range. And I'll provide a little bit of color on Bluegrass, the current situation which has improved for us dramatically at Opal and then I'll briefly touch on our future growth.

As I did say, a lot of that future growth and a lot of opportunities to really dig into at our upcoming analyst day. So getting in here to the first quarter and looking at our very strong first quarter operating results, I think the real big keys for this quarter from my perspective is one, first of all we're continuing to see our fee-based revenues drive and so we saw a 9% increase over the prior year's quarter.

And we continue to see strength on that. We certainly had a tough winter, but I will tell you that our teams did a great job of driving reliable services. And certainly we had some production outages upstream of our systems.

But for the most part our teams were able to keep our systems up and running and available through some very difficult winter time. So I want to commend our teams who really got some great focus on that this year, and did an extraordinary job on that.

Also our 17% growth in DCF which is really driven by the $63 million increase in the fee-based revenue growth and as well the $8 million lower maintenance CapEx. And of course, that lower maintenance CapEx was really driven as well by a pretty harsh winter that made it hard for us to get out and get some of the work that we would've expected to get done in the first quarter done.

You will see, obviously you'll see that those costs continue to build on the maintenance capital side of the build here in the second quarter as things thaw out, and we're able to get a lot of that work done. So bottom line, great quarter, great start to the year with many large catalysts for growth ahead of us, and last half of 2014 and certainly beyond 2014.

Moving on to the growth that we expect through our guidance period, this is something we're really excited about. Greater than 50% growth in our DCF from 2013 to 2015. And of course that really is on the backs of all of these big projects that we've been working so hard on and investing so much capital into.

And you'll see a lot of that growth is going to be driven by about a $900 million increase in our fee-based revenues comparing 2013 to 2015. And as well though, I think something that's really impressive on this front as we look at our cost structure, really a pretty small increase in our cash operating expenses relative to the size of this growth because a lot of this growth is already built out in terms of our assets being well-positioned in the northeast.

And as well, they're along a lot of our existing right-of-ways and just additive to our existing lines of business. So our increased cash cost is really not that high. So we see nice increase in our margin over the period as well.

For 2014, some of the drivers they certainly remain the same. Certainly we're very focused on the June restart at Geismar and also the successful recovery of our BI insurance proceeds. And those two things obviously go together. And so we continue to be very focused on getting that done.

And I would say on that front, John Dearborn's here to address more of that, but we're certainly still within the window that we've been describing. And we'll be looking forward to starting up probably in the last half of June. And I'll remind you, a start up isn't a simple push the button. We are starting to return systems various auxiliary systems into service as we speak. But again a lot of work left to be able to get hydrocarbons into the facility and cracked.

We're seeing a planned ramp-up in the drilling and the northeast G&P area. We've got great tailwinds building behind this area. And certainly the strong gas prices are a boost to that. And so we're pretty excited about how we're positioned there, but we do a lot have a lot of growth in the plan and Jim Scheel's here to address that.

Finally our commodity prices, we certainly have got a clear explanation of what we're at risk to thethere on our commodity prices. And I would tell you the thing I�ve probably got my eye on the most relative to our plan today is higher gas prices, which of course would impact our processing margins in the short-term.

I think in the long-term that's a very strong positive for us because it's going to continue to drive volumes, not just in the northeast but it would drive volumes in the west as well. I think while we may see some short-term impact against our processing margin, if we get above that average that we've got stated, I think we're pretty excited to see that because it's really going to drive the kind of growth in our basins and drive our volumes higher.

Finally ethylene prices are certainly an obvious driver, but nice to see the very significant improvement we've seen here in the last couple weeks. And I'll tell you that John Dearborn and his team have done a pretty good job of calling that. And so we're excited to bring Geismar back up right into running when there's a great need for those ethylene particularly on the Mississippi River front.

In 2015 we get a big boost from all of the big 2014 projects being on for a full year. So, you'll note many of our big projects are coming on in the last half of the year. So in 2015 we get a full year of that. And then, another round of fully contracted projects that come online in 2015 as Transco continues to connect these tremendous demands for the Marcellus supplies into these markets that are rapidly expanding as well.

So the great capital investment opportunities continue to be a big opportunity. And certainly are going to drive great cash flow growth.

But, I think looking to the next slide an even more important change to WPZ, really is the fact that because we've been investing using � been funding so much of this growth on the equity side, now we're going to be able to rebalance to the debt side as these big projects come online.

So as you can see here, on this slide titled Growth Plans, require minimum WPZ equity and no WMB equity, that is really powerful for the whole story. Because again, very limited needs for capital in the foreseeable future on WPZ because of all of the equity we've issued positioning ourselves over the last couple of years. And so for 2014 all we're seeing is a little bit of entrance into the ATM space on the equity side. And then no equity planned for 2015 at WPZ. So great reward coming back to our equity side of our balance sheet.

Moving onto the next slide here, relatively modest growth in the WPZ CapEx. This is driven by the recently announced 1.2 bcf-a-day contract to serve Cheniere Sabine Pass LNG facility. We're very excited to capture that business. And a very nice piece of business for us because pretty limited capital for the size of the market that we're capturing there. And that's a very long-term well-secured contract, so we're very excited about that.

And then as you can see in WMB a very fairly significant reduction in capital driven by us pulling Bluegrass from our capital plans at this point. So we certainly continue to believe the Bluegrass pipeline is a great project. We certainly think it's the best long-term solution in the marketplace for getting all these growing NGLs from the Northeast, from both the Utica and Marcellus into the Gulf Coast. But however we're not going to stick our necks out for the sake of the industry on that.

We've got great projects in our wheelhouse. And a lot of tremendous opportunity. They just put us in a very envious position of not having to stretch for that project.

And so we certainly hope that Bluegrass or something like it gets built for the sake of the space, but that's really going to be up to the shippers and producers to determine if they want to support a project like that. So we remain ready and able to push ahead on that project, but are plenty happy with all the great long-term contracted business we're getting in the other sectors of our business.

Moving on to look at a few of the milestones and the challenges here. I'm on Executing Large-Scale Value Creating Projects here on Slide 6. This is really just to highlight a few of the milestones and challenges that we are tackling this year. This slide really is just the top of the wave of all the growth that we're executing on this year.

On the next slide we'll see some of the bigger projects moving forward. So a few things I want to highlight though here. First of all, on Transco, boy what a great position we continue to enjoy on Transco. And it's not just moving the Marcellus and the Utica supplies out of the Northeast. It's really being driven, even in a larger scale, by market growth on our system.

And so just here in the last couple of weeks, we've announced major progress on 1.9 bcf-a-day of new markets just in the Southeast. So that doesn't include a lot of the market expansions we're seeing that go with Atlantic Sunrise and with Rockaway and Virginia Southside. This is just the southeast markets proper. So 1.9 bcf-a-day.

And in fact, we really are going to be working to make sure we keep the supplies delivering to these projects like the Dalton Lateral, the Gulf Trace project that we mentioned a while ago and as well the Mobile Bay South Three which adds about 325 million a day to meeting some critical gas generation loads in the Southeast.

On Gulfstar I just really want to give a big shout out to our team on the E&C side on this one. They really pulled it together with some great designs and great planning on the Gulfstar operations to get that spar set. We got that spar set in an offshore window of about four weeks. And that is, according to the experts we deal with out there that are in the business of setting a lot of this, a record for getting in and out of the major offshore campaign there.

So that does not come with luck, that comes with great planning. And I�m just very proud of our team and the way they executed on that. We're also very excited because we think this is going to be a huge success for Hess and Chevron on their tubular bells prospect. And we think with that kind of success comes more.

And we think this is going to be a great project for them as they look back and look at the project returns they're going to gain out of this. But it also helps other customers in the area like Noble and we're helping them deliver Gunflint in an extremely attractive schedule and returns for that project for them as well. So this is exactly what we're hoping to do, is to help create value for both our customers and for our shareholders at same time, and Gulfstar's a great example of that.

Regarding several of the incidents that we've had lately, first of all, our Opal gas processing facility and as you'll notice we did bring back two of those trains back overnight. We had shut those down last week following a fire at the facility. Those facilities weren't damaged in any way but just as an abundance of caution we had shut that down and made sure we inspected everything and make sure we were safe before we came back into service out there.

We have two other trains that also were not damaged in the fire and that is trains Four and train Five. And with those four trains on, we have adequate capacity to serve all of our existing business out there. So we'll be working hard to get trains Four and Five back on. But we're going to make sure that we do it safe first. And that's what we're focused on right now.

So I think regarding these incidents, Williams, we've always been very focused on being safe and being reliable. And certainly this has come as a big surprise to our organization. I can tell you that this has my full attention and the attention of our board as well. We're conducting very thorough investigations into each incident and see, determine if there's any common or root cause that's common to these incidents.

And I'll tell you one thing that is common which is a bit surprising perhaps is that these historically have been some of our safest facilities when you look at typical industry standards for safety. And certainly have been, had gotten high marks from regulators previously, across-the-board. So anyway, that's the one thing that's common, but we're looking hard to determine what other contributing factors may be out there.

And make sure what we're doing as an enterprise to make sure that we're doing our business in as safe a manner as possible. Not just for our own benefit and our employees' benefit but for the industry's benefit as well. So you should expect to hear a little more on that on our safety performance at the upcoming analyst day as well.

And then one final note on this slide, I'd just like to commend the team at ACMP and Access Midstream, continue to drive great performance for us. And that is certainly continuing to drive our growth in 2014 and beyond.

Looking to slide to the next slide here, certainly a very large increase in our projects. And just tremendous backlog that we're building here. A couple of things that you can pull off of this slide.

First of all, you'll see a line drawn in between our WMB projects, or sorry, at the top, our WPZ projects and then we draw a line for the WMB projects. You can see we continue to develop a pretty significant backlog of drop-down opportunities for WPZ at the WMB level. And so that certainly should not be missed.

And as well I'll tell you this is really just a result. This long backlog of great contracted projects is really the fruits of sticking to our strategy and being very focused around catching this wave of natural gas market growth both on the supply and the demand side. We think by far we have the best visible contracted growth and it's certainly well beyond any of the other large cap midstream players including Kender Enterprise or EnergyTransfer.

And much of this growth is driven off of our very well-positioned assets and the kind of investments we've made over the last several years, gaining our position that we have today. Our strategy we think is very much in line with our customers. And their access to markets and that's driving a lot of our benefit as well.

And then we remain very, very focused on connecting the very best supplies in North America to the very best markets. Both for natural gas and for the natural gas derivatives that are coming, because those are obviously low-cost into the markets they serve as well.

So a very attractive set of backlog here and I'll tell you this continues to grow. And it really continues to present opportunities for us to allocate capital to the very best projects.

Moving to the final slide here, certainly going to continue right along our strategy. And this great line of sight that we have for the major growth.

We continue to contribute beyond guidance in terms of new projects and new growth. And we really look forward to talking to you about that at our analyst day.

And finally, I would just say we're focused on the business that's going to be there for the long haul. We're not just focused on the opportunity du jour.

We're really focused on where we can gain a competitive advantage. And reward our shareholders not just in the short term but a great focus on sustainable investments that are supported by a long-term market trend and competitive advantages. And so, we think that'll continue to generate opportunity for not just years but decades, given the kind of position that we're staking out in the space, and we're very excited about what that means for our shareholders long-term.

And so with that I'll turn it over to questions.

(Operator Instructions)

Avira Hendron, Credit Suisse.

Just a couple of quick questions. First, on Northeast GM&P, so your segment profit in 1Q was $12 million but you also maintained your full-year guidance of $195 million which suggests a pretty meaningful ramp up so could you maybe talk a little bit about some of the puts and takes driving this? And also, what some of the main risks may be to this ramp?

This is Jim Scheel. As we looked at this winter this has been one of the worst winters we've had in the northeast. And I know over the course of the last few meetings about the reliability of the OVM system in particular, there have been some challenges with that. Those we didn't face this year, so volume challenges that we had were more on the producer side versus the asset side that we're operating, so we're very excited about having a reliable system ready to move gas especially in this market of ever-increasing prices for our customers.

We see a rather rapid ramp up of volume over the course of this year. Obviously, we saw a 2% growth between the fourth quarter and the first quarter. But I want to remind you, Avira that during the fourth quarter of last year we had some incremental volumes coming into OVM due to the Natrium fire. Those did not materialize or weren't in there during the first quarter this year and we still saw an increase.

As we move through the course of the year, I would expect our volumes to be slightly under perhaps what we've shown on our spreadsheet as the 335 average, but I want to emphasize we'll probably end the year above the 400 that we're showing. So I'm excited about the asset's ability to move volumes, to reach those goals. One of the key risks that we may need to look at is related to the Chevron well pad fire and how they react to that with bringing volumes online later in the year.

This is Don Chappel. Just to add to Jim's comments, I'd also just remind you again we're bringing a number of processing and frac facilities online during the year. And even on the volumes, on the growing volumes those will provide additional fees. So we'll not just get the volume growth but we'll get additional fees for additional services.

To add to that -- that's a great point, Don -- we'll be bringing on a number of facilities around OVM very quickly. We're already starting the pre-commissioning of these assets that include the stabilizer that will provide a much larger netback for our producers around their stabilized condensate. The de-ethanizer, I want to add that's going to be a great asset for our customers.

Again, we've had some restrictions in the ability to get product into the interstate pipelines because of ethane content over the course of the last couple months. With the de-ethanizer online, that'll no longer be an issue. It'll allow basically unfettered flow out of the assets into the interstates. And then as we bring on additional capacity on the west side of the system with the 24-inch line coming in, we're excited about the ability to fill up our cryos and continue the execution building more cryos at the Oak Grove facility as we move forward.

Great. And then just shifting gears a little bit, a broader question on maintenance spending. So this appears to be trending lower over the coming years despite more projects being put into place. We've also seen some of the operational problems that you referenced. So how should we think about all this? Do you need to spend more going forward or are efficiencies making up for it? Any color here would be very helpful.

Sure. I would tell you that if you look over time we've been at -- I'm not sure if it's good or bad, but we've been in the lead and having more maintenance capital as a percentage of our EBITDA. If you look back over the last four years or so, and that is really driven by our focus on making absolutely sure that we're spending dollars wherever we can to improve safety and reliability on our systems. We'll continue to do that.

I would tell you that we've got a lot of work out of the way, a lot of big expensive work done, out of the way in terms of in 2012. And that's for a number of reasons. Some regulatory, required, but as we inspected our lines, we went to the areas where we thought we would have the worst conditions on our systems. And as we've moved off of that group, obviously we get to the newer, newer systems and the systems with less potential anomalies in it.

And so our cost per mile of inspected pipe is coming down dramatically on us because we're getting into the better and better pipe. So we saw a big run-up there in 2011 and 2012, driven by things like the Clean Air Act and some pipeline inspection rules. And that was really kind of driving that. So not telling you that you should expect that to continue to go lower, because we don't have that built into our plan.

But so far just the things we've been hitting lately, as we inspect our pipes we've had less repairs required so we basically have to forecast what we do expect to find with our in-line inspection tools and our pipeline inspections, we basically have to estimate how much of that we'll have to repair. And that's been coming down over time just again because we're into some of our better-condition pipes.

Okay. Got it. One last quick one if I may. So one of the emerging debates in the industry is the viability of the export market for ethane. And you guys are in a unique position to evaluate this. So could you maybe just share your thoughts on this in terms of where the supply-demand balance is headed longer-term in your view? How big of a market you think this could be? Any color there would be great.

I'm going to ask John Dearborn. He is quite the student of that issue. I'm going to ask him to offer his thoughts on that.

Thanks very much. It is an interesting idea. I think I'm a bit schizophrenic on the idea so let's talk about both sides. From one perspective, you'd really like to see some better price signals out there on ethane so that the necessary infrastructure gets built. And you get supply reliability to the industry, to the petrochemical industry which of course we're a participant of but of course that could mean ethane prices going up.

So moving some ethane offshore I think begins to increase some of the demand, which perhaps begins to create a better balance there so that we do get the infrastructure that provides the supply reliability, which then assures on the demand side that people continue to invest capital.

On a very positive note, though, I can't speak to the project that was recently announced, but on a very positive note to projects like this, I think there's also an opportunity because there are some shortages out there in the world for ethylene that we could export some ethylene from some of these ethane facilities. And I think that bodes well for the ethylene balance in North America, which would be a very positive dynamic for us with our investment at Geismar today.

So I see a fair bit of positive there. Exactly how big the market's going to be for ethane export, that's a difficult challenge, a difficult question to answer right now, but I do see positive dynamics potentially on the ethylene side.

Great. Thanks for all the color.

Carl Kirst, BMO Capital.

Just maybe a micro and a macro question. First on the micro side, with respect to Geismar, and Don, perhaps this is for you? If you could give us an update on when you see the next tranche of insurance recoveries coming? And I guess perhaps an associated question is to the extent that what was in the first quarter adjusted EPS was a relatively large, healthy number for Geismar.

Given that amount, do you see business interruption actually being sustained through the outage period or are we going to see a little bit of a gap between that ending and the plant coming back online?

Good morning, Carl. In terms of the next tranche of cash I would expect we'll see some cash in the second quarter. We've made an application with the insurers for the next period of loss and it's going through their process. So I would expect we'll see some cash in the second quarter. I think we've disclosed that our business interruption insurance combined with our property damage insurance would substantially offset the downtime. We think that's still the case.

Exactly what that is will be dependent on the Geismar, I'll call them pro forma margins, at Geismar have been up and running and as well as our negotiations with the insurance companies. But I don't think anything has really changed. I think we're about where we were the last time we talked.

Fair enough. Thank you. And then maybe a macro question for Alan. And this might perhaps start getting into 2016 thoughts. But I just wanted to get a little bit more color on the ramifications perhaps of not doing Bluegrass in the sense of -- do you think that for instance, what had happened with Atlantic Sunrise where you had to see that train hitting the market before people were willing to sign on to long-term contracts, without Bluegrass, do you see perhaps the industry needing to get hit first before we will see longer-term contracts?

But ultimately I'm trying to get to are you more nervous than before perhaps of 2016 drilling activity? So I know that's kind of an open-ended question but any additional color there would help.

Carl, great questions as always. I would just tell you that certainly I think that there was a lot of people counting on somebody else solving the problem, as it relates to Bluegrass. And frankly, we're not going to be the ones to do that for the whole industry without adequate contractual support. And but yet we still believe that something needs to get done. We're very interested in seeing the very best project available to the market come forward and get subscribed.

And whether it's Bluegrass or it's a combination of other projects, we're not all that jealous of the opportunity frankly, just because we have so many other great investment opportunities and very well contracted opportunities. But we certainly think that a solution does need to get resolved. You used an interesting term there to say that the train that we would have to hit out here -- I would just tell you that, that is going to be the issue, is people are going to understand in the not-too-distant future that railing all of this product out of the area is just not going to be a sustainable solution.

But I think that's kind of what's got the market thinking it can continue to ignore the longer-term issue at this point. So we're going to remain very engaged in the subject for both our own project and for other potential projects that might come along. And we'll certainly standby ready with Bluegrass for the industry if it becomes adequately supported by contract.

You are correct, I do see this a little bit like Atlantic Access where the market just wasn't quite ready for it and didn't feel the pain quite enough yet. And I do think that as we get into this summer and into next winter when a lot of this new production starts to ramp up as per our forecast, our forecast that we see thru Access and our forecast that we see through Blue Racer, we see a lot of liquids coming into the market.

And we're certainly hopeful that we can get a project supported that will not deter drilling in 2016 because this is some tremendous resource out here. And we're going to have to work as an industry to come up with the right market access. And we certainly look forward to being a part of that.

Great. And just to paraphrase back though, you're thinking that with the supply models that you all are seeing that we could in fact see that pain as early as next winter?

Yes, if you look at the ramp-up in volumes that we're expecting, I think we'll see some big improvement in volumes.

Great. Thanks, guys.

Christine Cho, Barclays.

Congrats on a great quarter. I noticed last quarter that your ownership in Caiman Energy 2 had moved higher. And this quarter's data book confirmed an incremental 11% at book. Can you talk about who sold and was management included? Also can you discuss how the exit plan for the private equity guys works? Do you have the right of first refusal and then it goes to Dominion and then any third-party?

Christine, this is Don Chappel. We had an option in our Caiman Two deal to increase our ownership by funding a disproportionate amount of the capital investment. So we chose to act we had a good look at how the business was developing. We liked what we saw so we exercised our option to invest a greater amount than our partners. And increase our ownership accordingly, so we did that. In terms of the exit, we have a right of first offer on the sale. So we'll see what the sellers choose to do.

Okay. Great. We noticed some of the majors receiving permits in Marshall and Wetzel counties in first quarter, very end of fourth quarter. But I was unable to tell if they were Utica or Marcellus. Can you provide any insight into any updates on their plans to develop the acreage? Also one of the majors also had an impressive well in the Utica in Marshall County. Can you talk about what that may mean for you on a near-term and longer-term basis if the play is as great as the IP rate could suggest?

Sure. This is Jim Scheel. I'll let the majors speak for themselves as far as any respect specifics related to their forecast but I will say generically we've had a number of folks in our offices talking about the additional drilling specifically around the Utica dry. I would say there's an upside opportunity for us at OVM to be gathering some of that Utica dry gas into our system.

Gathering that forum, we have some extra capacity at the plants today so that wouldn't impact our liquids volumes to provide us with some near-term additional opportunity. Right now that's not baked into our plans but I think what you'll see is as folks are delineating that dry side you'll see more and more permits issued so they get a better feel for what they have in that particular area.

Okay. And then I noticed you've started to put Pacific Connector in your slides. It's looking like the probability of Jordan Cove is moving forward is getting higher? And something that I thought was interesting was that we've seen some pipeline projects for other LNG facilities, contentions on the LNG projects receiving FERC approval and not necessarily FID. For you can you discuss a little bit what has to happen for you guys for it to move out from under the potential project umbrella and into development?

Yes. Certainly. This is Allison Bridges. We are very excited for all of the progress that we are seeing on Jordan Cove and Pacific Connector. We have non-binding agreements with shippers that would really exceed the total capacity. Before we would be ready to, I guess, move to approval for that project, we will be looking to turn those non-binding agreements into binding agreements. We are hopeful that we will get the FERC certificate perhaps by the end of this year or early next year.

So that is another major milestone. I will say with respect to the FERC certificate, the route that we have on Pacific Connector was actually previously approved by FERC. So we think it's just a matter of timing on that.

I wasn't actually talking about FERC approval for the pipeline. I was talking about FERC approval for the LNG project. But it sounds like for you it has nothing to do with the LNG projects you're seeing for FID. It's the customers just have to contract with you?

No. I mean we certainly are working jointly and expect the same FERC approval timing and customer commitments for both Jordan Cove and Pacific Connector.

Okay. And then last question for me, the Gulf Trace Project, is that like just zone three max rate? Is that how we should think about that?

Rory, you want to take that, please?

Yes. Christine, this is Rory Miller. That project is a negotiated rate. It will eventually be rolled in. And so it's a little bit lower than what the postage stamp rate would be. And therefore it's required to be rolled in.

Okay. Great. Thank you.

Ted Durbin, Goldman Sachs.

Just wanted to talk about use of cash a bit at WMB now that you've canceled Bluegrass. How should we think about the disposition there, whether it's the path of the dividend, maybe it's M&A, or obviously you do have a big backlog of projects that you're developing potentially up at WMB. Can you talk us through that?

Ted, this is Don. One, we do have obviously we have dividend but in terms of the excess cash flow at Williams, beyond the 20% annual dividend increase that we've guided to, we do have some projects that are in development that we've highlighted here. And that caste is earmarked for those projects. Beyond that we'll have a high-class problem of choosing whether or not we have any additional projects or we just roll that cash into an even greater dividend.

So we're moving more and more to a call it, pure play holdco model. And as WPZ financial capacity grows, we would expect more of the organic growth to be funded at WPZ and less so at Williams. And again so moving more and more to a GP holdco where Williams can put substantially all of our excess cash flow into the business.

Got it. And then if I can ask about Geismar 2, can you just give us some more color about what that exactly is? Is it an expansion? Is it a Greenfield? How big is it? What's the capital? Maybe some rough numbers there?

Thanks for the question. Geismar 2 is we're out in the market right now trying to assess the market's interest in participating in an investment there. Our concept and we're going to be talking more about this at the analyst meeting coming up or analyst day coming up in New York, but our concept there is to build a cost advantage, large cracker. It would be Greenfield.

We have expanded Geismar if I can call it Geismar 1 for the moment, about as big as Geismar 1 could be expanded. I think we're about done with expansion save for perhaps some incrementals there. So that's the concept between about what we're thinking on this another investment on the river in ethylene.

But you would do it as a JV or you would do it standalone by yourself?

The current concept is we're considering a JV with perhaps one, at most two, other partners that would build derivative capacity alongside it so creating new demand and then we would take our volumes and sell them into the market on a fee-for-service basis.

I see. And then if I can ask one more? As we're thinking about Transco and the Ultimate and the growth in the Marcellus even in the Northeast, as you look out three to five years here, and the ability to do backhauls down to the Southeast what do you think is the ultimate capacity that Transco could move in that direction? And then maybe can you talk about the incremental capital you might need to spend to achieve that throughput?

Rory, would you take that, please?

I'd be happy to take that. If you think over the last couple of years, we've had a series of projects that were primarily designed to move Marcellus supply into the traditional market areas on Transco, the first was our Northeast supply link. Second was Leidy Southeast. The third was Constitution. Now, that's not impacting the Transco system at all but it certainly pulling reserves out of that area and then the fourth project is Atlantic Sunrise.

And all of those projects or at least the three Transco projects, had the feature of taking advantage of some of the latent capacity or latent capabilities that existed on the system to be backhauled or to be designed to change the flow from North to South. As we start moving beyond the volumes that we currently have contracted, the costs do start to go up.

And so I think the big question there is where's the market for service for producers in that area to get to an end user that they can contract with to take their gas? And the market's going to have to be higher than say, the market that was established for Atlantic Access for us to do more. However, if you start looking at new Greenfield projects out of the area, you'll be looking at rates far in excess of the rates that we contracted for on an Atlantic Sunrise.

So I know that's a little bit unclear as to the question you asked, but on a per unit basis, the capital required is going to be higher on future projects than it has been on the projects in the past.

Okay. That's helpful color. I'll leave it at that.

Sharon Lui, Wells Fargo.

With regards to Bluegrass, do you anticipate that this could be a project you would revisit within a year or two? And I guess do you have the contracts set up with Boardwalk to enable you to do this especially on their ability to re-purpose part of their pipeline?

Certainly we have a great relationship with Boardwalk. And I would tell you that we're working to make sure that if there is a project there that makes sense, we've got the ability to move forward with the project. And at the same time, Boardwalk has got the rights, under certain conditions has the rights to utilize that capacity for gas if they see a demand or higher value in that direction after a certain period of time here.

And so I think we've struck the right balance between us in terms of how to move forward on the project and so I think it's really kind of a matter of time. I think for the meantime, I think there's plenty of alternative uses or alternative ways to move gas south. And quite a bit of capacity to do that on various lines including two other existing Texas gas lines that would still be in gas service. So -- or on Boardwalk systems.

So I would leave that to Boardwalk to answer a little more, in a little more fine manner but from our vantage point, we've struck the right balance that allows us to keep Bluegrass on the table. And also under certain conditions allows them to move forward with something that makes sense for Boardwalk.

Okay. That's helpful. And any estimate on the potential financial impact of the Opal incident?

This is Don. We expect a $10 million impact on property damage with the excess property damage covered by insurance. We expect, I'll call it the business interruption loss, to be very modest particularly given that we already have two of the plants back up and in operation and we're hopeful that we can bring the other two undamaged plants into operation in the not-too-distant future.

So expect $10 million in property damage. And a very modest loss related to the downtime.

Okay. And any update on the regulatory front for Constitution? And perhaps the timing of that project?

Rory, you want to take that?

Sure. On Constitution, we have started getting into some of the typical project milestones. The FERC issued a favorable draft environmental impact statement back on February 12. And they had asked for comments by April 7. A lot of parties were asking to get that date extended. The FERC did not do that and held fast with their schedule. And we appreciated that. I would say in general, the FERC has been very workmanlike in terms of laying out a plan and sticking to it.

So we're very satisfied with what the FERC has been doing so far. They've been trying to I think do their part in terms of helping us get projects built. Right now we're working with FERC and the New York DEC in a coordinated fashion to try to get any of the remaining questions answered and the details checked off with the hope that we're going to get a final decision sometime later this year.

But it is part of a process and I'd say it's moving well. But at the end of the day there's probably more things that are uncontrollable in terms of going through the regulatory process than there are in terms of doing just the actual physical construction. In terms of in-service date I think right now I'd say that what we've guided to so far is those are still good assumptions.

Great. Thank you.

Timm Schneider, ISI Group.

I just had a follow-up question on the maintenance CapEx. Obviously, it was $36 million in Q1. You addressed so many weather issues but if I go off your full-year guidance of $340 million, does that imply, I just want to get the arithmetic right -- that this actually jumps to $100 million over the next three quarters?

It actually, if you look at our pattern of spending on that Timm, you'd see that second quarter is always kind of our highest because we've got a lot of work going on, winding up, waiting for a thaw out. So I would say generally you'll see our heaviest spending on maintenance capital in the second quarter, followed by fairly high third quarter and it tends to taper off in the fourth quarter because winter starts to impact our ability to get work done there again. So I think if you look back to our historical patterns, that's what you should expect.

But there's no change at this point to that $340 million?

That is correct.

Got it. And then next question. On OVM, can you just give us a sense of what utilization rate these assets were running at in the first quarter and what is implied to get to your 2014 guidance?

OVM was running during the first quarter of this year, let me look at this real quick. We were running at about 271 a day. We obviously have a lot more capacity coming online than that. I'm really not focused on the capacity issue right now. We can take everything that customers can bring to us. We're anticipating having that growing to over 400 by the end of the year. What I'm the most focused on as it relates to capacity really are those issues related to the new assets coming online this year.

That will help us both from increasing our fee-based revenue to also maximizing our customer netback. And so as you see the second and third quarter come online with those incremental assets, that's what we'll be really focusing on and then we'll be taking all the gases that customers can produce out of OVM.

Got it. Last question for me is on Sunrise is there any read through on the regulatory front that you guys have picked up from Constitution [versus] that, or is it just a completely different ballgame because it's more looping and just compression?

Timm, I'll take that. First of all I think one of the major differences is we're dealing primarily with a big chunk of that will be through the state of Pennsylvania and I would tell you the state of Pennsylvania has been very businesslike and approach things in a fashion that's very cooperative. So I think that's probably one of the biggest differences, frankly. It is not all along existing right-of-way though just to be clear. There is a Greenfield route coming South of the Leidy diamond if you will, or the Leidy lateral where it ties back into our mainline, is Greenfield.

So we certainly will have routing issues to deal with there that we don't get to enjoy a long and looping our existing line. So there is some existing looping on there, but there's also some Greenfield expansion there. But I would just say the area that we're going through does not deal with some of the New York DEC permitting issues that we're focusing on at Constitution.

I have one more quick one. In the slide deck you moved the opportunity set you outlined with Pemex in the Atlantic Gulf segment from 2019 to 2017 and I was wondering if you could talk about those opportunities in a bit more detail?

Sure. That is gaining some steam I would say. I think Pemex is very focused on developing those deep-water reserves, in a very timely manner, for a number of reasons I think. I think their elections are in 2018 and I think they certainly want to show that, but I would remind you there that 2017 is actually 2017 plus.

So not as big a change that we were intending to indicate there but I would say at the same time while you ask the question that, they are going to try to accelerate that as much as possible and that's why a project like, or a system like Gulfstar with our existing pipelines in there and our capabilities is really important to that, in terms of speed to the market. And so, we're very excited to be positioned well for that opportunity.

Okay. Thank you.

Becca Followill, US Capital Advisors.

On WPZ and your discussion of not issuing any equity in 2015 and minimal equity in 2014, can you talk about how far you're willing to lever up at WPZ in terms of debt to EBITDA?

This is Don. That implies up to a four times debt to equity. Excuse me, debt to EBITDA ratio. So again, well within the BBB investment grade band that WPZ enjoys. So really, nothing in terms of levering up. It's the cash flows are growing at such a rapid rate that it creates substantial additional debt capacity.

And can we translate that over to WMB and can you discuss your willingness to go non-investment grade with them?

I think our position is that this management team and the board's chosen to maintain investment grade at Williams and that's where we're at. But having said that we'll certainly always be open to looking at what kind of value we can create and balance that with risk. But again, the management team and the board have chosen investment grade at both WPZ and Williams.

So it mitigates some risk during more challenging financial times and puts Williams in a more opportunistic position during challenging financial times and while things are rolling pretty nicely in the capital markets, we know that on a pretty regular basis, the high-yield market does shutdown. So that's the advantage that having both PZ and Williams in investment grade provides us.

Thank you. And last question is once again on the Northeast volumes and your guidance for the year. The $195 million of EBIT for the year, should we start to see a material ramp-up in the second quarter or is this going to be very much a backend loaded kind of thing?

Again, this is Jim Scheel. As we look at the second and third quarter again, just to reemphasize we'll be bringing on substantial new assets during the end of the second quarter. That will be driving additional fee-based revenue. We do see a pretty significant ramp-up during the third and fourth quarter. I mentioned earlier I think in our package that we provided we are showing an average of about 335 million a day for OVM. I think that will be a little bit short of that as far as the yearly average goes. Right now we're anticipating about 327 but ending the year at a much higher rate.

So in excess of the 400 that we're showing there is our current thoughts around that. So yes, we do have a pretty significant ramp-up and I think that's in line with what we see from others whether that be [HTMP] or [Blu Rays] are also showing pretty significant volume growth as producers take advantage of this gas environment we're in today.

Great. Thank you, guys.

Bradley Olsen, Tudor Pickering.

I just want to stay on the Northeast and maybe push a little bit harder on Tim's question. Which was related to the utilization rate. Just trying to tie together the disparate commentary that you hear from the upstream and your midstream peers in the Marcellus. We're hearing some midstream guys talk about utilization rates for processing assets in the Marcellus that are in the 60% to 70% range.

But at the same time we're hearing upstream guys continue to mention that they do have wells that are waiting on pipe or stuck behind infrastructure constraints. And so maybe just to go back to that question of utilization rates, just to make sure I understand Jim's comments talking about the 327 million-a-day average move moving to above 400 million by the end of the year, am I right in thinking that you've got the 500 million at Fort Beeler another 200 million at Oak Grove by the end of this year?

And I should think of utilization in excess of 400 million across that asset base?

That's right. Not to again -- I haven't really focused on the ultimate capacity of the system. We're working to fill up what we've got today but as we look at Oak Grove coming online with DXP1 we've got the ability to add significantly more cryo capacity at that facility. We can have up to 10 cryos of that facility. We have a great piece of pipeline. We'll talk to you a little bit more about this at analyst day.

When I think of the total capacity for the OVM system we're really in excess of two bcf-a-day. So it's really, we will be able now with these foundational assets to stay ahead of our customers. And so as we see their drilling profiles coming online we'll be adding additional infrastructure if necessary. It's not going to be near as much pipe that'll be connecting to the CRPs, making sure that we have the processing and the compression in place in order to meet their needs.

And what is so nice now is where we have struggled in the past around some of those challenges as we've come into 2014 we're well-positioned to do that. Customers recognize the increased reliability and our ability to get their gas from [arject]. So we will build to meet our customers' needs. And we can meet all of the needs that they have today thru our assets as we bring on the stabilization, the de-ethanizer. The ethane line, the additional 24-inch line on the west side and then DXP1 at Oak Grove.

We've got a great story of growth to tell and the ability to meet the customer needs.

Brad, just to add a little color, that's a great job by Jim describing the situation out there. But it is not as simple as just, do I have processing capacity out there? It depends on do you have the trunk line laterals to be able to reach out and get the gas? Do you have the air permit requirements to set compression to pick up the gas? Do you have ethane de-ethanization capacity to be able to not get constrained into the interstates and backup gas that way?

And so it's a tremendous amount of planning required between the producers and the midstream companies to not have underutilized capacity but to be able to be drilling where the capacity is. And I would highlight a perfect example of that great planning that goes on between us and Cabot in the Northeast. And if you looked at the utilization of our facilities there, you would see it very high. And you'd also see limited constraint relative to their activity.

Limited constrained production on Cabot's part, again relative to their tremendous growth profile that they are on. And so that's a great example of the kind of planning that can be done and that we'd certainly try to encourage with customers. And as Jim mentioned earlier, he's had, that's starting to be recognized because he's had customers coming into his office wanting to sit down and make sure that they've got capacity for things like some of this burgeoning Utica drilling that is really starting to gain some attention right there in the footprint of OVM.

Great.

Even a follow-up to Alan as we talk about the Susquehanna supply hub or formally ABA market area up in the Northeast, our capacity will be going up towards the top end of that as we go through the course of 2014 into 2015. And we're already thinking ahead of how do we can continue to expand that capacity for compression in order to meet our customer needs across the board.

Those investments in that incremental volume isn't in guidance but those discussions have already started taking place as working with our customers in order to facilitate all of their needs. And it is a complex issue as Alan's pointing out, it's one that I think across the northeast, we're getting much better at.

Yes. That's great color. I appreciate those comments. And I guess the one final question which relates to the comments about the development of the drier gas portion of the Utica, do you think -- you mentioned that you have more of a two bcf-a-day system in OVM which I assume refers more to the aggregate gathering capacity?

Do you think that you'll be more focused on high-pressure gathering services as opposed to incremental processing once you're done with the Oak Grove build out just due to the fact that the drillbit does seem to be moving towards drier areas around that northern West Virginia area?

And one final one, which is, looks like the per MCF margin implied by your guidance in Northeast GMP is significantly higher in the latter half of the year than it is currently. And is that just the resulting higher fees that you're able to collect with stabilization, ethane and the addition of the trunk line that you've got laid out here in your presentation? And that's all. Thank you.

Well, there are a lot of questions there. Let me start out and make sure I don't miss one. Starting out as it relates to the opportunity surrounds the dry Utica. I would say we still continue to be very excited about the wet Marcellus. Obviously we've built a wet system at OVM. It's one where we have the ability to expand our cryo facilities in order to meet that need and maximize netbacks to our customers.

Yes, the incremental improvement in fee-based revenue will come through both increased gathering as well as the additional services provided to our customer, so that will improve our overall revenue position for OVM. As it relates to the dry gas area, I think we're perfectly positioned to go in the near-term put some of that dry gas into our existing system. Obviously, we'll be running that [thru] the plant and we won't be getting any liquids for the surplus plant capacity right now.

We have the ability to do that and work with our customers in order to help them identify what they've got as far as the resource potential and the dry area, we're all very excited about that potential. To the extent we need to have a duplicate dry gas system built. Because I believe again, a lot in the wet area and to the extent where we continue to build out that, it would really be a separate dry gas system.

As we think about putting in some of the 24-inch lines, there is the potential I guess to repurpose some of our lines. Those will be, that will be on our planning horizon as we've talked to the customers. Again, this all really comes back to making sure we're planning with our customers about what they need and when they need it. I think that dialog is beginning to open up as they learn more about this.

And because of our great competitive position in that marketplace I think we're well-positioned to meet any of those requirements as they evolve. Again, a big dry gas build out is not contemplated in any of the numbers that we've seen here today. I don't know if that was every one of the questions but I think it was.

That's great. And the only other one was just, am I right in thinking that margin per MCF is set to increase in the latter portion of the year in the Northeast?

Yes, it is. Because of the marginal increase because of the additional services we're providing thru OVM. In addition to that, we have some higher revenues coming from the recontracting around APA.

Great. Thank you for the details.

Chris Sighinolfi, Jefferies.

Thanks a lot for the added color this morning. Just one quick cleanup from me. Actually, it's probably for Don. And this was really just tied to NGL Petchem. Lots of moving parts in the quarter with the eye and the drop-down. Just wondering if you guys could quantify the DCF impact from the dropped assets for the period owned? And how that compares to the guidance you gave us earlier in the year? I think you were looking for 130 to 160 on the full year end, so just wondering how the initial one month of owned DCF stacks up against that?

I think our initial guidance, Chris, contemplated three months of ownership at PZ. And as it turned out there was one full month of ownership because a drop-down happened a couple months later than what we expected when we put out that guidance in the first place. The good news, Williams enjoyed those earnings for January and February instead. And the one month was about $15 million to $20 million.

Okay. And then you guys, just a quick follow-up on that. You guys have had some timing issues and third-party disruptions in 4Q up there. Just wondering if all that's resolved at this point?

That's a great question. And yes, we did through the first quarter. We're tight line to [sub core] up there. They did have some operating issues at the upgrader, which reduced our volumes approximately by about 20%. At the end of the quarter, all of those issues were resolved and we're back to full volumes. So looking forward we can expect Canada to deliver at its full potential.

Great. Thanks so much, guys. Appreciate it.

With no further questions in the queue I'd like to turn the call back to our presenters for any additional or closing remarks.

Okay. Great. Thank you, everybody for joining us this morning. As you can tell, a lot of excitement about the quarter and the growth prospects that we have in front of us. And we look forward to seeing you at analyst day and sharing a little more of that with you. And particularly as we look further in beyond 2015. So thanks again for joining us. And we very much look forward to seeing you at the upcoming analyst day.

Ladies and gentlemen, that does conclude today's call. Thank you all for joining.