威廉斯 (WMB) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to the Williams and Williams Partners' second-quarter 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, sir.

Thank you, Rochelle. 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 websites, williams.com and williamslp.com.

These items include yesterday's press releases with related schedules and the accompanying analyst packages with 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, 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 our 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 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 we reconciled to generally accepted accounting principals.

Those reconciliation schedules appear at the back of the presentation materials. With that, I'll turn it over to Alan Armstrong.

Great. Good morning, John. Good morning, everyone. Thanks for joining us. Certainly, the second quarter was very exciting for Williams as we seized the opportunity to make an important acquisition that moved us closer to fulfilling our vision of being the premiere provider of reliable large scale infrastructure that really has become very clear to everybody that this kind of large-scale infrastructure is going to be absolutely critical to allowing North America to take advantage of its vast natural gas resources.

We also rapidly accelerated our earlier stated plans of establishing WMB as a pure play G&P hold co and continued to leave the space in dividend growth by a very wide margin. At WPZ, we had another strong quarter with operational performance being in line with our expectations and driving a 30% increase in distributable cash flow at WPZ. We also enjoyed great progress and execution on a number of very import projects in the second quarter.

A tremendous of work going on in the organization on this front, and just to name a few, and you really only hear about the very largest projects but a tremendous amount of effort going on across the organization. Just to name a few, Gulfstar, Keathley Canyon, the condensate stabilizer at Oak Grove in the Ohio Valley midstream area, the new ethane line, which is being completed in the OBM area, and we also started construction finally on the Rockaway Beach Lateral after a very long and drawn out permitting process.

So for those of you there in New York, you can look out and see some of that work going on. And in fact, on the front of our site, you'll see some picture of that. That's going to allow us to bring that project in on schedule, as well. So a lot of very big projects that we made tremendous progress on and remain on schedule on on some of those major projects.

We also saw continued strong demand for our services with two significant new market pull projects on Transco that were fully contracted. I think it's becoming pretty evident that Transco just continues to line up these hits. I'll tell you that's not slowing down in terms of continued business development opportunities just keep coming at us in that business line.

The Marcellus area volumes continued their rapid growth as well with a 31% increase in gathered volumes as compared to last year's 2Q volumes, and we're on track once again to lead the industry on volume growth in the Marcellus this year. Our Geismar ENC efforts were in line with plan, and our rebuild was completed last week.

Our final efforts on the expansion will be done by the end of next week, so our ENC team, our engineering construction team, is wrapping up and moving out as we now are turning that important facility over to our operations team. Unfortunately, and certainly this is something we're all very disappointed around here with, but unfortunately we did find a new concern there at Geismar that is going to require an enhancement of our safety systems that we expect to cause about a six to eight week delay in the first sales of ethylene at Geismar.

As I mentioned, this is certainly disappointing to us but as difficult as this is, I'll tell you, I am proud of the fact that our organization will always put the safety of our people first. This is certainly just our organization following those words with action by having the courage to pause and do the right thing in terms of making sure that that plant is as safe as possible. So even though this is an out of the norm situation here, I know this is such a big issue.

I really would like to take you back to the appendix, and if you'll look back on, I believe it's slide 14 in this deck, and we'll move there on our webcast even though it's out of order here. You'll see that on slide 14, we show the incredible progress that's made on the expansion and the rebuild and the pre-commissioning efforts which were all but complete and will be complete at the end of next week in terms of getting all of our systems turned over to operations.

So what does that mean? It basically means systems like our steam systems, all of our auxiliary systems, and we break those down into about 62 different systems, and as those are mechanically complete, we turn them over to our operations team for them to take control of those facilities.

So as we were finalizing some of the relief valve study that was required as a result of the event last June 13, we determined and were frankly, a bit surprised but determined that there was another scenario that we needed to be prepared for in the event of a blow down or in the event of an error at the plant and a malfunction at the plant. And that assumption that we embedded has required us to go back and study the press relief system and we determined as we did that, that we actually had to make further modifications to the relief valve system again.

Certainly a tough decision to do that, but again, I think absolutely the right one when it comes to putting safety ahead of anything else in our business. So you can see here in July 31, we are started on that relief valve system and modifications. We had a lot of these. The plant already buttoned up and in many cases, a lot of the systems were dried out.

We're having to open the system back up now and so that introduces moisture into the system so when you see the plant dry out, that's basically backing up on some of the systems that we had already turned over. So we think the relief valve systems modifications will take about seven weeks. In parallel with that as we start to button up some of those systems will start to dry out and will start tuning up some of the cracking furnaces there.

So that's the second blue part that you see there called plant dryout and hydrocarbon introduction. And then finally moving us to a first week in October as we start to get into ethylene production. And so one other thing I'd like to clear here, that is certainly our target. We think that is a very achievable target, but in terms of our financial projections just given the number of issues we face there, we have spread that contingency out and basically we have the range in our financials now which is basically starting with that first ethylene production running through the end of the year.

And so that's the range of outcomes we've got built into guidance now. So we are building ourselves some additional contingency in there beyond what our targeted date is there. So that's our detail and we'll be happy to take any questions on that later. John Dearborn is with me here to help address some of that, as well.

Moving on now to the rest of the presentation and onto slide 7. Some really impressive growth numbers continue to be posted for both WPZ and ACMP and that continues to drive very impressive cash flow growth at Williams. And this is especially impressive when you consider that in the second quarter, we only recognized about two months of business interruption coverage there at Geismar.

Our fee-based revenues in the quarter continue the very steady march up and to the right, and despite a very mild second quarter in terms of any weather on our pipeline systems, we still continue to move that up about 7% over 2Q of last year on our fee based revenues. And I think also important we're well over 80% of our reported net revenues were coming from fee-based services in the period.

It also should be understood that much of the big capital investments that we've been making here really over, you know, the last two and a half to three years don't start producing cash flow until the third quarter and fourth quarter of the year as Gulfstar, Keathley Canyon, and our OBM Ohio Valley midstream investments really begin to generate significant cash flow and earnings here in the last half of the year.

And then of course ACMP continues its very steady progress up and to the right as this group continues to benefit from its very tight focus on growing the gathering and compression business in the nation's very best natural gas basins. So very pleased with the way the business is continuing to expand. We've got a really exciting last half of the year in front of us.

Now looking at some of these important growth drivers that we've continued to focus on and report to our investors. One item of significance that's been added to this list you'll see there at the bottom is the ACMP acquisition, and in turn, the results pretty impressive work by our finance and legal teams this last second quarter moving from a price agreement with GIP all the way to closure within a matter of about 5 or 6 weeks. So very impressive work by that team and just continues to shine a light on the kind of talent we have around here and our commitment to continue to drive shareholder value here at Williams.

So this list that you have here represents a tremendous amount of effort, really across the whole organization, and with the exception of Geismar, we are very pleased with the results on this scorecard here as we pause here in the first part of the third quarter. Now, there's certainly many ENC projects that are nearly complete. Now we're beginning to turn our attention on the next wave of projects that just keep coming thanks to our very well-positioned assets and the competitive advantages that we constantly focus on developing.

I'll tell you that is a very natural part of the way we run the business here at Williams and a lot of the major large-scale projects that we take on and the challenges that we take on really are in support of making sure we maintain some strong competitive advantages in our business.

So moving on to slide 9, and looking forward here to this next wave of projects, we see that this list is long and it just keeps coming. The bulk of the large projects in 2015 come from our Atlantic Gulf region that continue to perform very well. I think our Atlantic Gulf region continues to execute well and continues to hit its number on a regular basis. And we certainly are -- as we look here into these projects in 2015, many of these are really in the major projects, are expansions of our Transco and our gas pipeline system in the Atlantic Gulf area.

Projects like Kodiak, for instance, really aren't any capital. That's a tie back to an existing facility. We do have continued what we would call program capital as we continue to build out the Northeast G&P. But a bulk of our major projects have really, in the Northeast, a lot of that is getting out of the way this year, and we've really set ourselves up for a lot of big fundamental growth looking forward beyond 2014 in the northeast.

The major projects in 2017 really come on late in the year but our backlog of projects beyond 2017 just keeps building, and you really should expect this to continue for some time as we bring the combined strength of both WPZ and ACMP now and bring those resources together and the opportunities that that combination brings really is going to be critical as the nation here tries to get up on 100 Bcf natural gas market. We think Williams and the combined entity is going to very much at the forefront of reaching that 100 Bcf a day gas market here in the US.

So moving to slide 10 and kind of looking at the big picture of what this new MLP would be, we couldn't be more excited about not only the size, the scale of this MLP but the very consistent focus on being the player in the natural gas phase and natural gas products and derivatives that are coming out of this big growth in natural gas, and we think the combination of Williams and access just continues to load us towards more and more growth.

Just some important things to note on here that are very impressive in 2015 and expected EBITDA of about $5 billion. And in addition to that, continued best in class growth distribution of 10% to 12%, which is really impressive when you consider the scale and what it takes to grow the cash distributions in this business in something of this scale. So continuing to do that through 2017 and maintain strong coverage is really providing an investment vehicle that we think is absolutely unmatched and it's going to continue to give us the kind of firepower to continue to expand this business larger and larger.

Couldn't be more excited about the combination of this business. As you look on slide 11, this really conveys the breadth here that Williams has, but it also shows, really, what ACMP is doing for us in the upstream piece of our business. And if you think about the way we've continually grown a lot of our businesses over the years, we've basically have linked and levered either the market back into the upstream or we've taken the upstream, and by that I mean the gathering and processing business, and moved those opportunities downstream.

Certainly nothing's more obvious about how we've done that in recent times. Even though we've done it many times over the years, nothing's more obvious than the way that's gone for us up in the Susquehanna supply area and the ability that we've generated many large projects off of that big upstream, growing volumes there. So if you look at that and think about ACMP today on an operated gathering volumes, PZ and ACMP are close to the same number.

If you look out on a capacity basis, WPZ's larger part of that is just because of the legacy large scale assets that we've had out in the western basins. Nevertheless, very impressive position in the gathering space upstream and our ability to continue to deliver services and link that to service opportunities to our customers downstream, this basically just reloads our set of opportunities and continuing to grow that.

I can tell you, it didn't feel like we needed a lot of that but nevertheless, I've got a lot of confidence in not just the assets, but the combination of the people of ACMP and Williams. There's some incredible strengths at ACMP that frankly, we are very excited to have hitched to our wagon and a lot we can learn, frankly, from expanding the upstream gathering business and the great job they've done there. And what PZ brings to that, of course, is the ability to continue to expand opportunities beyond that.

So tremendous strategic fit as well as a great financial fit for Williams and WPZ. So moving on to slide 12 here. Really couldn't be more excited about how we're positioned strategically right now, and thrilled to see the ACMP piece come along. It just further fills our handout, and the scale and the opportunity set that we have and the growth that we have, we think is unmatched. We have a very fired up organization, I can tell you right now.

Very excited to take on these new opportunities, both at the ACMP level and at the Williams level. So very excited about the quarter. Disappointed with Geismar, but extremely excited about the second half of this year and the kind of growth we're going to get to witness here in the second half of the year. With that, I'll turn it over for questions.

(Operator Instructions)

First we'll hear from Christine Cho with Barclays.

Good morning, everyone.

Good morning, Christine.

Your other fee revenues in the Northeast doubled quarter over quarter even though NGL production didn't change that much. I'm assuming this is the condensate handling that came on during the quarter. When did that come on and how much of the 6,000 barrels per day capacity are you using currently?

Jim, could you take that, please?

Sure, Christine. Good to talk to you again. That's correct. That's the stabilizer fee revenue, and the stabilizer came on -- it was 50% of the stabilizer, I should say, came on. You can see we have the first phase of 6,000 barrels a day came on in April of this year.

And then how much of that capacity are you currently using?

We're using about half of that today, and that's growing as additional wells come online. We've got about 73 wells coming online for the balance of the year.

If your gpm of the gas is 8 or something like that, how much of that is condensate? Is 10% a fair assumption?

I'm not 100% sure on that Christine. I'd have to get back with you. I think that's pretty close. It's probably in the 8% to 12%, but I don't know exactly the number.

Okay. That's fine. Also, the de-ethanizer getting moved up by a quarter, did this impact volumes in second quarter at all, meaning did anyone have to shut in wells because the gas wouldn't meet pipelines with the ethane in it?

No, we haven't had any of those issues right now although that continues to be a concern, Christine. The de-ethanizer had no impact in the second quarter actually, even if it had been online, we wouldn't have had the opportunity to move ethane to Nova because of some other downstream issues. We're right now working to commission that asset and it should be up during the third quarter.

Okay. Great. Then Alan or Don, I think you've told me on a prior call that you guys have right of first refusal if Caiman decides to exit at Caiman Energy to JV position, but what about on the ACMP side?

There are some partners who were backed by private equity in E&P companies who may or may not want to be a minority owner in such assets in the longer term. And I would think that they would want to monetize at some point. Would the combined ACMP/WPZ MLP have any first rights there?

You know, I'm not sure what the confidentiality terms are for ACMP on that issue, so I probably would rather not comment on what their rights are there. I would just simply say that we do feel like we're very well positioned to consolidate a lot of those assets in the Utica there. Pretty excited about between Blue Racer and UEO what our opportunities to consolidate look like there.

Okay, great. Then while I think it's consensus opinion that the first part of the deal of ACMP is accretive, I think there is some confusion in the markets as to whether or not the second part of the deal adds to that accretion or chips away a little from that accretion. Is there any clarification you can provide?

Christine, it's Don. Again, since the merger is currently being negotiated -- or about to be negotiated between the two partnerships, I don't want to go too far on this. Certainly, the way we styled it, Williams would take reduced cash flow in the early period and enjoy higher cash flows, higher growth beyond. So, likely mildly dilutive initially and then turning around pretty quickly.

Okay. Perfect. Thank you so much.

We'll next move to Shneur Gershuni with UBS.

Hi, good morning, guys.

Good morning.

Alan, in your prepared remarks you talked about market pull of projects, and so forth, that if things had come to fruition during the quarter. I think in your slides, you had said that you've got about a backlog of $25 billion at WPZ and another $4 billion at Access.

Any sense on how large this backlog could potentially grow in terms of order of magnitude? Are we talking in the neighborhood of 10% to 20% or are we talking something significantly higher, assuming you are able to commercially negotiate some projects, and so forth?

I think a couple of thoughts on that. One, we may actually see a lot of opportunities that come to us that require less capital. So higher earnings and better return but less capital as we look at opportunities between the two. So I would just say the opportunities may not be measured in capital. It may be measured in earnings growth.

I would just tell you that the number of opportunities that just keep coming at us along the Transco system and on the northwest pipeline system as the market continues on the demand side to try to figure out how to take advantage of all this low-cost gas and continued confidence in low-cost gas is pretty impressive that given what a deficit we had in storage this year, we're sitting at a sub-$4 gas price really tells you the confidence that the demand side has in the supply capabilities and long-term supply capabilities of the gas basins.

What that's developing is a lot of major downstream pool projects. So I would tell you, I think a lot of our growth is actually going to come from that area and our ability to connect the supply into those opportunities, and of course, all of that new gas supply bleeds into both natural gas liquids and olefins, as well, as we produce that gas we've got to do something with the liquids and find a market for those liquids.

So I would tell you rather than the ACMP combination driving a lot of capital increases, I would say it's likely going to drive, particularly in the northeast, it will drive some higher earnings but perhaps, I don't know that it would reduce our capital but I would say a lot of it would be just higher earnings in here.

Great. A couple of quick follow-ups. We saw some ramps in volumes in the Northeast, and you didn't have any change to your 2015 guidance. Is it fair to say that, you know, the way the Northeast acted in the second quarter is exactly the way you wanted it to? It's running according to plan and you would expect to see a significant acceleration in 3Q and 4Q?

I was wondering if you can sort of walk us through the ramp as to how we go through 1Q and 2Q of this year as to how we end up with kind of the guidance for 2015 in terms of, you know, where you expect the big pickup in ramp acceleration to be?

That's an excellent question. I'll tell you, I'm very excited with the -- what we're seeing there and the engagement. I'm going to ask Jim shields to provide a little more color on that. And thank you for asking the question.

I'll answer that in a couple of phases. I think we are very excited about the progress we're making in the Susquehanna supply hub or ABA area. We're right on target, actually probably a bit little ahead of where we wanted to be. We have a lot of projects coming online during the third and fourth quarters of this year. They'll be on time, on budget.

We're growing those volumes by about 34% versus prior year as we come out of the year, and quarter over quarter this year, we're up 8%. So obviously, we always want to do better up there and smash more gas into the system, but we're right on target with where we want to be. OVM has been a bit of a different story. It's very consistent with the analyst day and the last earnings call.

You can actually see on page 20 of the book that we've lowered our average volumes for the year. That's primarily due to a number of producers having some challenges at the front end of the year, and so we're seeing a delay on wells coming online. But we will actually end the year higher. We adjusted the number for the year end at 420.

Again, as I had mentioned a bit earlier, we have a number of wells that we have lots of visibility on getting ready to come online. We have 73 wet in Marcellus. In addition to that, we have some dry Utica wells that's not included in that overall number that could actually add to some of the volume but obviously, that will be at a bit of a lower rate. Our biggest issues right now as we look into the third quarter are commissioning the assets that will drive some incremental fee revenue.

You'll see our fee revenues increasing, and then just seeing when the producers tie the lines in. LMN is on target with where we expect for the most part and we'll end the year about 25% higher than last year, as well. So although there are challenges in the Northeast that we've been seeing around OVM on the producer side, the good news is, you know, unlike past discussions, the assets seem to have the reliability in order to move the gas, and we'll be able to meet our customers' needs as we go through the third and fourth quarter with the incremental processing options for them.

Great. One last question, if I may. Just if we can turn to Geismar, obviously a disappointment that it wasn't able to start up on time, and so forth. I was just wondering if you can sort of elaborate a little bit on the safety issues.

Did it come up, you know, in the inspection process and sort of prevent a permit from being issued or is this something that you've just decided to do over and above the process and all permits and everything is in place. I'm just wondering if you can give us a little bit of color around the safety measures that are being enhanced.

Yes. Let me have John Dearborn take that. He's been right square in the middle of that.

Thanks for the question. Very inciteful question, as well the way you ask it. To take on the first part of your question as to whether it had something to do with the permits, I would say no, not at all. It rather -- to put it into some context for you, the overall plan and in the overall plan, there were more than 750 pressure safety valves throughout that plan and on a regular basis, you go through and you study over pressure scenarios on these various pieces of equipment and how the valves are expected to control over pressure circumstances.

And prior to the incident and then of course as a result of the incident, we were doing overpressure studies, and they were being done in a very prioritized way and a very careful way, as well. You know, we have to be very deliberate and very disciplined in how we go about doing this work. The work had progressed extremely well. You know, some of the valves, just to give you an idea, some of the valves get studied and we said okay, the valve is fine.

You put the documentation to the file about how the valve has been restudied, and no further work was needed. In the prioritization, we left several, of course, valves toward the end of the study. It was not until early in July as this study was finishing up that the team came to learn of a particular scenario that truly required mitigation.

As we came to learn of that, the team considered several strategies that could have potentially worked in this circumstance and determined that the best solution we could have applied was to install several now PSVs. Just so you understand the number of several, is really about 12 PSVs are being installed and to replace several sections of piping. It happens that the full impact of this essentially new work on our schedule is not known until earlier this week.

Frankly, it's what resulted in this disappointing disclosure today. I just want to reiterate once again that we're taking this extra precaution here to enhance the safety of our workers and the public. I hope that provides some adequate color to everyone on the phone about this entire issue that we're grappling with as we move forward toward the safe and sustainable restart of the plant.

Great. That is extremely helpful. Thank you very much.

And we'll move on next to Brian Lasky with Morgan Stanley.

Good morning. I just am kind of following up on Geismar there really quick. I was just wondering if you guys could discuss a little bit more at length kind of what the drivers of your range is in terms of first ethylene production and what could possibly delay this further?

Sure. Glad to bring some color to that. Let's reflect again about what happened back at the time of the incident. This plant went down in a very unusual and a hard way. We had to take some unusual precautions and go through certain procedures in order to clean it out. So certainly, there could be some potential risks related to some of the equipment that as a result of the way it had gone down.

Secondarily, I would say there's always a concern that exists around a restartup of a plant, especially when it's been expanded now. As to whether the systems as designed and as reinstalled work, take for instance, rotating equipment. Sometimes you have to go in and look at the rotating equipment a second time.

Now that's historically happened to us from time to time. It doesn't -- we don't know anything today that says we should have any unusual worries on this start-up. So I have nothing that I know of at the moment, but with an abundance of caution, we thought it was appropriate to guide that the start-up is not risk free once we're through this next round of installation of pressure safety relief valves. That's the entirety of the story behind the contingency range that we put around that start-up.

Got it. And Don, I was just wondering if you could just update us on your discussions with the insurance companies and your recovery expectations and kind of, you know, once we get into this outer period where you could be up above your business interruption insurance, how you are kind of thinking about that and how that's kind of baked into guidance.

I'd say now that the plant is substantially complete from a construction standpoint and we're moving, you know, very quickly toward the start-up, most of the facts are now very well known and obviously, we'll continue to update our claim as we move through start up.

You know, we've retained some expert consultants, if you will, that are doing studies to support our claim. We plan to present those studies and conclusions to the insurers in the fall, and we would be hopeful that that would then start the next round of settlement discussions.

In terms of -- I think you mentioned previously, that you expected to use your ATM kind of in 2014 to be largely out of the equity markets in 2015 at PZ. You put out kind of a share count. You know, applying some meaningful equity issuance in the back half of the year.

I just wanted to make sure that was kind of still your expectation that you do any incremental equity on the ATM this year and you'd be largely out of the markets at PZ next year.

Brian, that, in fact, is the case. Again, our financing plan is pretty well unchanged. Obviously, you know, the drop down of the remaining Williams-owned assets is another factor, and we're looking to do that. Ideally, post merger in late 2014, early 2015.

Then finally, just I think Cabot mentioned on their call some infrastructure issues that they were having that impacted their production in the quarter. I was wondering if you guys could just elaborate from your perspective what some of those issues were and have they been resolved going forward?

Again, this is Jim Scheel. I'll comment on that again. I listened to the earnings calls too and I want to just reiterate, our performance quarter over quarter were 8% more than we were previous quarter and first quarter's 4% more than the year end. So we've been continuing to grow volumes.

Obviously, we have to do a fantastic job in coordinating volumes into the system. I think Cabot is probably relating more to the opportunities missed just by some coordination on scheduling gas. Because actually, we were moving more than we have, and again, as the additional horsepower comes online during the third and fourth quarter this year, we're going to see a rather rapid ramp up so that we finish the year about 34% more.

So again, I appreciate the concern for the shippers, but we continue to put more gas through that system and are only accelerating that as we end the year.

And just finally for me, in terms of any update, in terms of timing, I mean, AMCP, WPZ, negotiations, is there any update from your most recent disclosure?

Nothing new. I would just tell you, you know, the conflicts committees are working hard and have got -- are very well advised, and I think everybody understands the importance of moving ahead with it with some diligence. That's exactly what's going on right now.

Thank you, gentlemen.

Thank you.

Next, we'll move on to Abhi Rajendran with Credit Suisse.

Hi, good morning, guys.

Good morning.

In your data book for WMB, you show a revised look at the excess cash flow available even after the dividend step up, which is around 20% per year through 2016. It sounds like the remaining part of the deal will be modestly dilutive up front and accretive beyond that. How should we think about the current and potentially more excess coverage being brought down over time once the entire deal is done?

Abhi, again, yes. We would expect some of that excess coverage to come off because one of the big considerations that Williams is making here is moving the distributions we received really to the ACMP schedule in terms of those IDRs. So Williams is making, I'll call it, a concession to enable the merger.

We think that that's going to drive, you know, significant value long term, but certainly with some near-term reduction in cash flows. However, by 2017, that really turns around and we would expect to have a nice increase in accretion, if you will, cash flow accretion on a per share basis. I don't know if that answers your question.

Yes, that helps. Just a couple of other quick ones. The WPZ had a shortfall this year of about $400 million between the DCF and distribution. How should we think about how you make this up? Is this just with capital raises or do you need any sort of support from WMB? Any color there would be helpful.

We expect that WPZ's financial plan is largely in tact. I think at midpoint here, we moved the cash flow about $150 million, and as well, we do have an anticipated litigation settlement that we would expect would largely offset that in terms of cash. So we think not a lot of change there.

Just, you know, going back to, you know, the cash flow that your first question there. I would point out that, you know, our 2017 to 2019 cash tax guidance is still great at 14%. We would expect that to come down somewhat as we continue to add to our capital spending. As you can see, our capital spending is about $4 billion this year and it declines about $2 billion in change by 2016. It's because what we have in guidance is really sanctioned projects.

We have a lot of projects, organic projects that we're working on, that as those are added to guidance, and those projects are placed in service, that will continue to press that cash tax rate down somewhat. So just consider that as you're building your models. You know, right now, our run rate seems to about in the $4 billion range, and if you take that $25 billion and divide it by the six years, you get about $4 billion a year and that's pre-ACMP, and they've been spending about $1 billion a year.

So you can think about that as you think about our cash tax rate. While the rate looks to be fairly low, remember that that's based on cash distributions received. If you look at it on a percent of pretax income, which is more conventional, you'll see the rate's quite a bit higher.

Okay. Got it. That's helpful. Last quick one from me. On the Canadian projects, can you talk a little bit about what's driving the shift back in CapEx and this at the WMB NGL Petchem segment level? Are these delays in locking down customers or just a slower than expected construction schedule? Any color there would be helpful.

Great question and the PDH project is what I assume you are referring to primarily. And the other being the Syncrude.

I would just tell you that given the kind of increases that we're seeing in the petchem space on the engineering construction side and the kind of demand we're seeing on labor, and we expect to continue to press for, we are working very hard to not get ourselves in a difficult situation relative to schedule and to make sure that we are pushing away from that risk as much as possible in terms of overruns because we do, you know, as we look forward, we see a lot of pressure on the skilled labor that it's going to take to build out this infrastructure.

So I would just tell you that we are making sure as we move forward into that, we don't get ourselves in a position where we're reliant on thinner and thinner resources and lower and lower productivity. So that's the primary cause.

Okay, got it. Thanks very much.

And we'll move on to Ted Durbin with Goldman Sachs.

Thanks. Just sticking with the sort of the petchem, I guess bigger picture, do you see being in the petrochemical business as a core confidence for you or do you feel like it may be distracting you from some of the maybe bigger midstream activities that you have?

Should we read into this PDH? Maybe delay, something around there. There's some questions around what constitutes qualifying income. I'm just wondering if you can just talk about that for the value chain a little bit more?

Yes, sure. We continue to see the petchem business as not -- for Williams, not being in the petchem business for the sake of being in the petchem business, frankly, but really as a pull through and market outlet for these burgeoning NGL supplies.

So certainly, I would say it's a little bit different between Canada and the Geismar facility because in Canada, really, we've pursued that many years ago because mostly that's a processing business. We're not actually reforming any molecules there. That's being done at the upgraders. We're simply extracting that through typical cryogenic processing and then fractionating it just like we do in other sectors of our business.

So in Canada, I would tell you the competencies, if you will, are not very different, and we've certainly got a very strong competitive advantage there. In both cases, Geismar and as we would move into PDH, we continue to look at that as an outlet for our products in a way for us to continue to provide market access for our customers that otherwise isn't showing up. I would tell you that's how we look -- we think about it, and we certainly think about it in terms of being more of a fee-based business.

I think it's a very good question that you raised and certainly given the great number of opportunities that we have in front of us, it's always an issue of capital allocation for us. It's part of the reason, as I just answered before, part of the reason that we're making sure we don't get ourselves into a difficult spot there in that piece of business because we do see a lot of pressure in getting that business built out, particularly on the PDH facility.

So in the end I will just tell you to continue to look at it as a place for to us to expand market for us and for our customers. I think it's a very nice complement to the ethane link that we've had for years, and it's a good place to provide market for our customers. That's kind of the extent of it in terms of how we look at it. We don't look at it as being in the petchem business to be a petchem player.

Understood. That's very helpful. If I can just shift back to the Northeast. I'm just wondering if you're seeing any reaction by the producers to some of the gas price volatility and the price declines that we've seen recently, and especially some of the regional basis issues that clearly people are still having there. It sounds like the issues have been more physical and tie-in challenges and whatnot. Is there any sort of bigger reaction from producers from the gas we are seeing in the Northeast?

Yes, no, and to be fair, I would say that given the kind of recent pushdown in prices that's really just happened here, we've had bouts with it, but it's really just pushed down here over the last month or so. I would say it's a little bit early to call that, frankly. But certainly, the activities that we saw in the first half of the year are just now coming into fruition.

There's been quite a flurry of activity on the drilling side, both in the wet Marcellus and the dry Marcellus up in the Northeast and now starting with some of the dry Utica in the OVM area. So that in the first half of the year, I would tell you that that's been pretty strong. I think it's a little bit early to call with this more recent interest in natural gas if that's going to slow much of that down but so far, we certainly haven't seen any signs of that.

I would tell you I think the producers are getting, in particular in the OVM area, are getting better and better at understanding what they've got there and are more and more excited about it. So, we'll see what happens, but I think it's a little bit early to say we've seen any kind of reaction at this point.

Okay. And then just last one for me. On constitution, any update for the regulatory and permitting process there?

Not much to add there. I think we're very pleased with the way that the FERC has continued to press forward on that, and we're working hard to work with the DEC -- the New York DEC, and communicate to them the importance of this infrastructure and the need to deal with some of the water quality -- or some of the water crossing permits that the New York DEC has in their hands and so we're really kind of remains focused on that issue. I would say we've made progress but we haven't solved that problem yet.

Okay. Thanks. That's it for me.

Next we move on to Carl Kirst with BMO Capital.

Thanks. Good morning, everybody. I think I’ve just got two questions left, and then now on understanding and appreciating your comments around the Canadian PDH facility and labor inflation and the like.

I think prior we were thinking maybe this could come to a head by year end and just trying to kind of getting a little bit more color on what you were saying earlier. Is this something that we should just kind of think of now as more just on the back burner, more of kind of on hold or is that still progressing?

Yes. Not at all. There's a tremendous amount of work. We've made great progress with the polypropylene take contract, if you will, that takes quite a bit of the price risk out of it. And I would just say both parties, both us and the party that would have the polypropylene take are working diligently to make sure that we have great confidence in our estimates and the work plan it would take to construct it in a low-risk manner.

I'll tell you, the work is, you know, probably at an all-time high in terms of making sure that we're very confident of where we stand with the estimate. We do very much expect to conclude and have it pinned down by the end of the year. So in no way should you consider it's on the back burner. It's just us absolutely making sure we derisk it as much as possible before we move forward.

Understood. I appreciate the clarification. Then just last question and maybe this is on Geismar with respect to the pressure scenarios that were studied. Clearly, ethylene plants are not like processing plants. It guess it's not exactly a cookie cutter approach here.

What I'm wondering is, is that to the extent that this plant has been rebuilt or perhaps studied now, maybe with all of the different scenarios that are out there from a safety standpoint, does this in any way make Geismar -- I hesitate to call it best-in-class because of what we have gone through, but as we kind of look forward from this point today, does that in any way help you distinguish yourself from other clients and how ultimately does that perhaps help or hinder Geismar 2?

Yes. Carl, good question. I would say we certainly are coming out of this much stronger than we went into it, both from an operational focus and reliability, and we worked hard to really improve the older plant as well as making sure that those learnings were built into the new plant as well.

I would tell you that probably the fact that we've got a team that's been right in the middle of a major construction project like this, it's also looking at Geismar 2. So it's not some distant memory of the lessons learned. It's kind of real and available, puts us in a very knowledgeable position to push forward with Geismar 2, if that's what we choose to do.

So I would just say I'm very thankful that we've got a team that is -- this has been a really tough project if think about if you were managing this major expansion project in the first place in or around a plant and then have a major explosion that isolates us from being able to complete the plant right in the middle of a project. That's a project manager's worst nightmare, and yet they've hung with it.

I'm just saying we've got a teams that's very schooled on what it takes to be successful as we look forward into Geismar 2, and certainly a team I'll have a lot of confidence in pushing forward as we look to Geismar 2 opportunity.

Great. Appreciate the comments. Thanks, guys.

Next we move on to Sharon Lui with Wells Fargo.

Hi, good morning.

Good morning, Sharon.

With regards to the dividend illustration you provided, those tax rates, do you anticipate those cash tax rates to change materially if the ACMP/ WPZ transaction occurs?

No, Sharon. We do not. We don't expect that to change. The distributions will change somewhat, so there will be some effect, but we wouldn't expect any material change in those tax rates as a result of that. Right now, they are driven largely by the, you know, placing assets in service.

We are in the middle of an appraisal for both accounting and tax purposes. So, you know, there will be some adjustment of estimates along the way as we, you know, conclude both the accounting and tax appraisals that are really key in this process.

Okay. Then, I just was trying to gauge the potential for the exchange ratio to be renegotiated. Maybe if you can provide some color on some of the key factors Management considered when you determined the proposed exchange ratio?

Sharon, we did some extensive modeling and really trying to come to a transaction that we think was value adding, both to ACMP and WPZ unit holders, really trying to balance the considerations there. So obviously, a lot goes into it but that really was the design criteria. We wanted it to be a transaction that we thought would be beneficial to both partnerships, really trying to strike that balance. That's really what we put forth in our proposal.

Okay. Just a last question. I guess given the IRS's scrutiny on some of the non-coordinate stream activities and PLRs, at this juncture, is there any concern regarding the PLR for Geismar?

None here. Not at all.

Okay, great. Thank you.

You're more than welcome.

We'll move on to Craig Shere with Tuohy Brothers.

Morning, guys.

Morning.

So back to Geismar 2 prospects, any further updates around the market's capacity to provide long-term fixed return contracting versus commodity exposed returns?

I'm glad to take that. Thanks very much. Not much has changed since analyst day. So just to reiterate where we are there, we get a very warm reception when we put our RFP out to the marketplace. You know, our interest is oversubscribed quite significantly.

You know, what we are doing with this particular investment is we're essentially trading off that commodity margin to the buyer of ethylene or to our joint venture partner in exchange for a fee for service opportunity for WPZ in total concert with our strategy and certainly the market's appetite, given recent and current ethylene prices, is quite warm to a provider that's willing to provide on a fee for service basis.

So we're seeing very, very warm reception both on the JV side and on the ethylene purchase side for fee for service type arrangements.

Great. When do you see that? Is that like a 2015 -- early 2015 period to try to true up some of those negotiations?

We're going to be working those negotiations through this year and into the early part of next year, I'm sure. But I think the bigger emphasis here is very much aligned in Alan's comments earlier about the PDH unit at the strategic level.

Until we're absolutely certain that we've got the right commercial deals lined up here, and until we're absolutely certain we know how to execute derisk the capital project on an investment of this magnitude, we're going to hesitate to rush our way into a sanction, if I could call it that. We'll sanction only when we're absolutely ready for both the commercial and the project side.

Got it. Don, if I could return to the insurance recovery question. If I remember, when I asked at the analyst day, the comment was made that, you know, debates about recoveries had less to do with debates about what the true commodity price should be versus taking best care in not only being safe, but also being appropriately efficient in starting up again.

Could the fact that you're now delaying start up, you know, comfortably beyond the recovery period basically obviate that issue a little bit and make it easier to achieve recovery since you are taking some of the dime on your own accord?

Very good question. Certainly, the claim, you know, our claim continues to get somewhat larger because we believe we've, you know, we've worked prudently to bring the plant back into service. Obviously insurers who, you know, have the money in their pockets, you know, are going to argue against that. We think we have a very solid claim.

We think that our outside experts will help us present our claim in a way that is compelling and we're optimistic that we'll receive very substantial additional payments, perhaps as early as late third, fourth quarter.

Okay. So you think that much of this could be resolved by the time the plant's actually up and running?

I think more likely it's fourth quarter.

Okay.

Yes, the plant being up and running in the fourth quarter, but with the targeted October date, it could take a bit longer than that, is, I guess, my comment.

I got you. Last question kind of a little broad spectrum and big picture, but we've got a couple of things going on with potentially a, you know, competing NGL line from the Northeast to Bellevue, maybe looking a little better prospect at the moment, and also condensate exports looking more realistic than ever before.

There's obviously competitive pressures but new business opportunities from all these types of events across your system. I wonder if you all could just comment on any net positives or negatives from these types of events?

Well, I guess if you're just asking generally about the competitive environment that we see out there, I think we continue to see not so much impact from competition, frankly, we just have so many opportunities coming at us that that probably is why I want to say it's the least of our worries. It certainly is low on the list.

Really, the -- if you think about some of the larger risks to the business, it's more around the macro environment, and one thing we do compete for, frankly, as we become very aware of is we compete for rigs from one basin to the next. So I think having ACMP alongside gives us a little better diversification to that in terms of being exposed to the big gas basins.

I would say that's really the issue that keeps us focused on getting great market access for our customers and keeps us aligned with them, frankly, is that we desperately want to see good market access for the basins we've invested in. That's obviously a service we'd like to provide as well in terms of providing better market access and better long-term markets for their products. So that's how we're continuing to go about that.

I would say on the competitive front that we just got our hands so full with the opportunities that are coming to us and we're uniquely positioned to win that we're not having to stretch very far beyond that.

Great. I appreciate it.

And our next question we'll hear from Chris Sighinolfi with Jefferies.

Thanks a lot for taking my question. Don, just curious, I see the guidance for WMB effectively DCF, but I don't think that's something that you reported along with quarter reports.

So I'm just curious if you could either for the second quarter sort of provide on the same schedule with how you would guide it, you know, what the DCF for WMB entity was? And then is that something that on a go forward you're planning to report as part of the financials?

Chris, great question. Yes, we have not done that, but we certainly expect to. So you can look for that next quarter.

Okay. Any broad framework as to what it might have been for the quarter?

I don't have that number off hand here. I don't know if John has it, but we can get it to you. We can post it on our website.

Okay, great. That would be helpful. Thanks, Don.

Can I just comment here? Again, we're going through of a transition here with ACMP and that our acquisition of the initial interest will now cause us to consolidate ACMP beginning in the third quarter which will, you know, create some differences in reporting. Obviously, we've been reporting on an equity basis. It'll be fully consolidated.

We'll be booking a gain, significant gain in the third quarter to revalue our initial investment in ACMP. We'll be booking some substantial and tangible assets. We'll have additional depreciation amortization related to those assets as well.

Just kind of a head's up and look forward to quite a bit different presentation. You still get to the same bottom line here in terms of cash flow but from a balance sheet and an earnings standpoint, there will be some changes in the basis of presentation.

Okay, great. Thanks, Don.

You're welcome.

Our last question today will come from Bradley Olsen with TPH.

Good morning, guys. Thanks for fitting me in. I know we're running a little bit late so I've really only got one question. Now that you've closed the ACMP general partner acquisition, can you comment on any ongoing efforts to retain key personnel from Access, and kind of broadly speaking, how successful those efforts have been?

That's certainly something we very much value, that organization and their capabilities. That was high on our list of things to accomplish, and so we did move swiftly and aggressively to do so. We are very comfortable with where we are right now on that front, and so a lot of great work by our teams here at Williams and the team at Access to really address where any of those issues might be and to take care of them swiftly. I'd say we feel very good about where we stand today, and I'm particularly proud of both the organizations coming together to work so quickly.

Okay, great. So broadly speaking I guess it's fair to say that in the Utica and the Northeast where Access is maybe -- most of their capital is being deployed that the team is largely in tact for post acquisition.

That is correct.

Great. Thanks, guys.

That will conclude today's question and answer session. I would like to turn the call back over to Alan Armstrong for any additional or closing remarks.

Great. Thank you. Thanks for all the great questions. As you can see, we're very excited about the future we've got in front of us, and this team is, you know, I think just continues to generate momentum towards this vision that we have of really being the premier player in this natural gas super cycle, and very excited about the opportunities that keep coming at us and we keep executing on to accomplish that.

We look forward to reporting to you in the third quarter with great continued progress and certainly at the balance of the year. Thanks for joining us today.

That will conclude today's call. We thank you for your participation.