威廉斯 (WMB) 2015 Q3 法說會逐字稿

Good day everyone and welcome to the Williams, Williams Partners third 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, Michelle. Good morning and 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 williams.com. These items include yesterday's press releases and related investor materials, including the slide deck that our President & CEO, Alan Armstrong will speak to momentarily.

Our CFO, Don Chappel is available to respond to questions and we also have the five leaders of Williams operating areas with us. Walter Bennett leads the West, John Dearborn leads NGL and Petchem Services, Rory Miller leads Atlantic Gulf, Bob Ferguson leads Access Midstream, and Jim Scheel leads Northeast G & P.

In our presentation materials 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 Principles. These reconciliation schedules appear at the back of the presentation materials.

With that I will turn it over to Alan Armstrong.

Great. Thank you John. Good morning everyone. Thanks for being on the call this early this morning.

Before we discuss our third quarter results I would like to provide a brief update on the transaction we announced with Energy Transfer on September 28, 2015. We are on the path to completion and we expect to file the proxy statement soon. The transaction will then be subject to SEC review and regulatory approval and expected to close in the first half of 2016.

With that I want to reiterate that the focus of today's call is going to be on our financial and operational results for the third quarter. And I ask that you please keep your questions focused on our results and I want to thank you in advance for your cooperation on that. So we are going to hold tight to that and so now just some brief thoughts on the fundamentals relevant to the third quarter and the industry in general.

Overall I have to say it really was a great third quarter for us from an operational performance perspective, a project delivery perspective and progress toward future growth. We remain very focused on execution, on cost management and taking advantage of the great asset positioning that our strategy has delivered and I think this focus really showed up here in the third quarter.

Importantly despite the fundamental pressures on our industry from dramatically lower commodity prices we've continued with very substantial growth in our adjusted EBITDA and DCF. So really showing the strength as we continue to see prices erode and some dramatically low NGL prices in the quarter.

But our strategy is continuing to invest in these big fee-based projects really starting to overwhelm those lower prices. And so that's not to say we aren't feeling some of the effects of the low commodity prices directly in our commodity margins and indirectly via the volume shut-in on some of our gathering systems, particularly in the Northeast.

However, because of our unique position we continue to deliver strong results and we see strong growth ahead from our projects, especially on the demand and market side of our business. As the US industries and the international markets look to take advantage of North America's abundant and low-cost natural gas supplies.

The North American producers continue to really amaze us and continue to innovate and deliver production at cost levels that no one thought was possible even a year ago. And while this has led to a painfully over supplied market in the short term, it continues to lead the way towards growing demand and expanding prosperous markets, including natural gas and natural gas derivatives.

And so over the long term we think we're really seeing the supply led expansion. And I know that people are getting impatient about that but I can assure you if you look through our backlog of projects, it is very evident to us that capital is going in place to pave the way for growing demand.

So the current barrier to this success that we speak of and look forward to really is the low cost access to these expanding markets. And that's in the way of pipelines primarily, but also other infrastructure required. And we are certainly building out this capacity not just important for Williams, but for the industry. And it's also important for the North American economy and we really are very excited to be taking on these important challenges as Williams. And see it as a critical next role in really delivering tremendous value that the North American producers have developed via their innovation and continued learnings in developing our low-cost resources here in the US.

So with that let's move on to slide 2. Overall our strong third quarter results underscore the effectiveness of our strategy to connect the best natural gas supplies to the best markets with all this fee-based infrastructure we continue to invest in. This accounted for more than 90% of our gross margin during the quarter and will continue to be that for quite some time. And the tremendous efforts by our teams to deliver the continuous string of our large-scale infrastructure projects required to realize the fruits of this strategy.

Once again we showed our ability to deliver substantial growth in EBITDA and DCF, despite much lower commodity prices. And in fact four of our five segments realized substantial growth and our fee-based revenue which was up over $200 million in the quarter overwhelmed the dramatic drop in commodity margins from the quarter of 2014. Additionally our DCF of $754 million delivered a 1.04 coverage and that's even without recognizing the benefit of the $209 million IDR waver for the quarter that was associated with the WPZ/WMB merger termination.

Let me now drill into the drivers for this 21% improvement in EBITDA for the third quarter of 2015 to the third quarter 2014 comparison. First of all, big congratulations to our Atlantic Gulf team who delivered $414 million for the quarter up 53%.

Even more impressive was this was in the face of dramatically lower NGL margins in the Gulf Coast. And the drivers for this strong performance were a lot of projects continuing that were brought on earlier in the year things like Gulfstar One, Discovery's Keathley Canyon connector. But also a full quarter on new Transco projects, including Rockaway Beach lateral in New York.

In addition to that the team also delivered a new project during the third quarter, which was the first phase of the Virginia Southside lateral, which our team delivered on time. And we also were able to get some early revenues from the mainline services associated with the Leidy Southeast project. We brought in those revenues well ahead of schedule.

Of course the Leidy Southeast lateral is not yet online but the mainline portion for gas flowing from that lateral, we were able to bring some of that on early. So great job by both our commercial team and our project teams in continuing to over deliver on that. As you will see on the next page you will see a stream of projects for Atlantic Gulf continues to grow as we provide capacity for the demand side of the growing natural gas market.

At the Access level $351 million adjusted EBITDA that was up 9% on this was really driven on fee-based revenue growth of course. And we saw both the mix of volume growth and contractual benefits across multiple areas provide steady growth in EBITDA despite challenging commodity prices in those basins as well.

Specifically the increase in adjusted EBITDA between 2014 and 2015 was driven by higher fee-based volumes and contractual support from the minimum volume commitment agreements. As well as the increased ownership interest in the Utica East Ohio Midstream. And so as you will recall we transacted on that earlier in the year and so that delivered here for us in the third quarter as we stepped that up.

And this was despite that area being impacted by very low commodity prices in this basin for both gas and NGLs. And so we did see some shut-ins in that area that were fairly significant in the third quarter, but we're seeing a lot of that production return to service now headed into the fourth quarter.

In the Northeast G&P $87 million, up 28% also on higher fee-based revenue. And this certainly during the quarter a few things to note here price related shut-ins from our producers did dramatically impact the fee-based revenue growth on our gathering volumes. But we still managed to grow those volumes by 13% despite some very large shut-ins in the quarter.

And as well we -- our volumes processed so the inlet volumes our processing plants actually grew up by over 40%. And NGL production was up 2.5 times last year's production thanks to new processing facilities that were installed in the first quarter at OVM.

Of course the NGL and Petchem was glad to see a solid quarter of operations from the expanded Geismar plant. And the team hit some very impressive production levels during the quarter as they really started to learn what they could do with the new facility there. But unfortunately the ethylene margins that we realized during the quarter were much lower than we had expected earlier. But again from an operational perspective some nice performance coming from the team there.

Canada also had strong production levels with propylene sales being up 29%, but also suffered weak pricing in the propylene area there as well. The NGL services side had a strong operating quarter as well. So when we speak of that, that's our NGL transportation and storage [visa] our NGL and Petchem unit. And actually saw the NGL transfer volumes on our Overland Pass pipeline go up by 59%. Overall a big step up in adjusted EBITDA from $22 million to up $85 million for this business unit in the quarter.

And then finally while the West saw a 28% decline in its adjusted EBITDA to $161 million, really driven by dramatically lower NGL margins, it really was a good operating quarter in terms of the team doing everything they could to deliver the best numbers. And we really saw that show up in the way of lower operating costs.

And the team was able to help hold our fee-based service revenues flat versus third quarter of 2014. And so really great efforts by teams out there to keep the volumes continuing to flow out there and continue to reduce our cost.

The NGL unit margins that we realized in the West actually were at a 10 year low as we saw NGL sales fall by over $70 million this year in the 3Q versus 3Q comparison. Total volumes on Northwest pipeline were up 14% and this is due to both the increased use of natural gas for power generation in the northwestern states, as well as some basis differential spreads that were existing between places like AECO and the Western states.

Really a good sign, I tell you when we see volumes pick up even though they are interruptible and people taking use of their capacity we see that kind of increase in our throughput volumes on a system that's always a good sign for long-term perm sales which is really where we make our money on the pipe like that.

So moving on to slide 3 here. Just a picture here of the continued delivery of projects and great job of our team of continuing to put these projects into service.

We said back in the first half of the year that the demand side of the natural gas market is driving our capital investments and I want to touch on some of these projects here. First of all the Transco Virginia Southside as I mentioned earlier was placed in service in September of 2015 and as we look forward in the fourth quarter here to see the benefit of a full quarter there rather than just the one month.

I also would just note there really impressive execution by our team. We really had some very difficult obstacles to overcome in the construction in that area. We won't bore you with all the details, but I will just say the ability to deliver that on schedule given some of the obstacles that the team faced there was very impressive and want to recognize the great efforts there.

On Gulfstar One we continue to see strong fee-based contributions to the EBITDA. Lots of work going on right now out on that platform to tie back the Gunflint prospect and to further improve production from the existing completed wells.

Moving to the Discovery facilities Continue high utilization on the KCC system. We continued to see record volumes on that system.

And the team is doing everything they can to maximize throughput because there is a lot of throughput wanting to get through that system right now. And as well we are seeing a lot of exciting growth on the horizon for this investment as well. So really excited about the throughput Discovery out there both in the current and in the future.

On the Northeast G&P on our gathering process in the Northeast. We did execute -- did execute the Pennant JV.

And just to give you a little bit of color on that, that's a joint venture that really allowed us to take advantage of some large dedications that we had up in the area that were some legacy acreage dedications that we had up there. And we were able to combine those acreage dedications with some players that already had some flowing production in the area, as well as already had a lot of the capital invested in some new infrastructure up there.

So really excited about the work that our team did there to take advantage of our acreage dedication and find a way to work with partners in the area. That's a very capital efficient way for us to monetize some of those big acreage dedications up there in the Northwest PA and Northwest Ohio.

On the dry Utica side, of course we announced a significant increase in dry Utica acreage from Chesapeake in the quarter. But we also are really excited to see some significant dry Utica wells showing up in the OVM areas. So right there just to the east of the Ohio River right in our back yard there.

And OVM really seeing impressive wells that are being completed on the same pads that were earlier developed for the Marcellus rich area. And really this is a common story here for the Northeast just tremendous resource potential up there and ability to produce a lot of gas at very low cost.

But we sit here and as the whole industry and are anxious to see the new take away infrastructure goes into service. And I will just tell you there is a lot of growth potential for the future up here and really just dependent not really on improved prices from where we are today really just access to those markets, both on the gas and the NGL side. Really excited to see the opportunities continue. And the growth for the future up here just continues to expand its horizon for us.

On the Haynesville the 2016 and 2017 MVC cash flows were unchanged via our contract renegotiation with Chesapeake. And we were able to expand our dedication through 2035 and also brought in a very substantial additional drilling commitment which will drive those increased volumes beyond the end of the MVC obligations there in 2017. So, great job.

I know there has been a lot of debate out there but I will tell you from my perspective any time we can hold our current cash flows and commitment to cash flows via those MVCs and expand the horizon and help a customer continue to grow for the future and us enjoy that growth with them, I think that is a win-win. And really proud of the team and very excited to continue to work with Chesapeake on finding ways that are mutually beneficial to our organizations.

At Geismar, the expanded plan, as I mentioned earlier, meeting our production expectations and actually even though some very hot periods, which tend to lower our throughput capability, we hit some pretty impressive numbers relative to our expectation in production for the quarter. And expect to see that continue here into the fourth quarter.

We also announced the fee-based off-take contract that we executed for the Alberta PDH facility. And we are moving to the next phase of project development and we do expect the FID, or the final investment decision, in the third quarter of 2016. But I will tell you a lot of great work going on there by the teams and really hard work to make sure we know exactly what our estimates is going to be and that we execute that project in a flawless manner. A lot of time and care being taken on the front end to get that right, and that is exactly how we ought to be taking on a big project like that.

In addition looking forward I want to touch on just a few projects that are going to come on later this year. First of all the Transco Leidy Southeast expansion. Really important not just for the cash flows that project will deliver, but as well because it's going to provide additional gas takeaway of about 525 million a day coming out that will be in service for the fourth quarter of 2015.

Our Canadian off gas processing project, we refer to as Horizon, we expect that mechanic can complete here in the fourth quarter of 2015. We don't expect any meaningful cash flow from this asset until first quarter of 2016, as we will be starting this up in the dead of winter up in Port Murray, Alberta. And if you have ever been up there in that part of the year you will know what I'm talking about.

Great job by the team really trying to push through to get that project completed. And we are looking forward to bringing that big project online and to service in 2016.

And then finally our Kodiak tieback to our Devils Tower platform, we expect it to come on in the fourth quarter of 2015. A lot of times this gets left off of our project list, just because we are not spending capital on that so it doesn't show up as a major product. But we are being reimbursed in what capital we are spending I should say, but is a very meaningful addition to our cash flow. And so it really is an exciting project for us and continues to show that our deep water strategy is alive and well with Devils Tower moving into its I guess 12th or 13th year now of operation.

Once again I think this is a very extensive list and I'm proud of our teams for the progress they continue to make and the growth they are delivering. And Williams really does have a truly unique position in terms of our asset footprint and the kind of projects that we continue to stream together.

Moving on to slide 4, you can see here our list of demand driven projects is very significant. So while most of the attention in the industry for the past year or so has been focused on prices, production curtailments, and shut-ins, we have really been focused on serving the growing demand side for natural gas and we expect to see that continue. As you can see from this chart much of our growth potential for the future is on the demand side of the business. We think that is critical to expand out into those key markets and we are really pleased to be positioned the way we are.

Our focus especially important in the Northeast where we've got many producers up there that are really critical to them to get access to those markets. And we take those obligations very serious to get those developed and we're working hard to overcome continued regulatory and political hurdles that exist in getting all this big infrastructure in place up there.

And so in the Northeast while, as I mentioned earlier, we did have quite a bit of gas shut-in, in the third quarter, it really is a great opportunity for us as we continue to invest out. In fact we touch or are invested in these assets in the Northeast. We are exposed and these assets gather nearly one-third of all the gas being produced up there. And so as we are able to develop our own infrastructure for takeaway as well as peers in the industry we are going to see some tremendous growth that does not depend on additional drilling rigs.

Because not only is there a lot of gas shut-in for economic reasons up there today, we also have a tremendous amount of drills on uncompleted wells and a big inventory of that, that again is just waiting on the right price signals not from the Henry Hub kind of natural gas prices, but they are locally in the area. We are excited to being working and get our customers exposed in that area.

Moving on to slide 5 some of the things we went over today. I would reiterate that this quarter's results were a direct reflection of our strategy to uniquely position Williams to connect the very best natural gas supplies to the very best markets. And I really think it's hard for anybody else to make that claim in terms of how we are positioned in the natural gas market there. Very unique in that regard and we have worked hard to get there.

The fact that we are delivering record quarterly Bcf and record adjusted EBITDA through some of the tough headwinds for the industry is a real testament to the teams at Williams. And they are out there every day executing on our plan, working hard to deliver results for our shareholders. And we remain focused on executing against our natural gas focused strategy and are very pleased with the results we have delivered in the third quarter. And importantly our backlog of projects continues to grow as we see the demand side of the natural gas story continue to develop. Sustainable low-cost reserves only served to fuel this story of demand growth and we are excited to be a part of what will be tremendous growth for the future.

So with that we will move to the Q&A session and I would just like to remind everyone that the purpose of today's call is to discuss our operational and financial results for the third quarter of 2015. And I ask that you please limit your questions to these topics and I want to thank you in advance for your understanding and cooperation on this.

I know there is a lot of interest in understanding the transaction, but we are going to be limiting our comments today to the Williams operations and our performance here for the third quarter and drivers for the future. So with that we will turn it over to questions. Thank you.

(Operator Instructions)

Brandon Blossman Tudor, Pickering, Holt & Co.

Good morning, Alan, everyone. Let's see here there is quite a bit. A little bit of bookkeeping in terms of project timing in the Northeast. Any incremental color on Constitution and getting that kicked off?

Sure. We have gotten through all the work with CEQ with New York and that was our final barrier up there. We are working with the Governor's office to understand what could cause a delay of getting that permit out. But that is the final issue that we are waiting on and we are working to understand that.

Lot of great work going on by the teams there to get past the requirement to the New York DEC, but we think we have gotten there. So really just up against getting the Governor's office to sign off on that and then we will be in position to get that done for the fourth quarter of 2016.

So still on track for that timeline?

Yes.

The Edmonton PDH facility, any color in terms of just how competitive that market is? Obviously that's a much-needed project in that region. Are there other folks competing for similar projects there? And just across your footprint do other PDH units make sense and what's the competitive landscape for those types of projects?

Yes. Great question. I will tell you that PDH project is very, very unique from our perspective in that it's taking advantage of very low cost propylene that is already in the area, as well as the propylene that we would make with the new PDH facility.

For quite some time wanted to see polypropylene unit and start downstream derivatives be developed in the area because it's just a logistics game. So today a lot of that propylene is going into the Gulf Coast, being converted into various derivatives, in particular polypropylene, and then being railed back up into the Midwest markets.

And so this project takes advantage of that low-cost propane there in the basin and low-cost propylene that comes directly off those big delayed cokers in the oil sands. And then just transports it in directly into those Midwest markets and also we will have access to international markets out of places like the Port of Vancouver. Really excited to be teamed up with the Goradia Capital Group. And it's a huge marketer of derivative projects or derivative products around the world and really excited to have them as a partner there.

And I will tell you the next available project to us is clearly a PDH II facility there and they are very interested in that and we certainly have plenty of product as we continue to expand our upstream oil sands operation. We've got a lot of propylene that we want to find a better home for then having to rail into the Gulf Coast. I will just tell you it really is a logistics play for us. We are not depending on the propane basis differential that we have been living on up there.

But we do expect the propane to be long there in Canada for quite some time. And we really look to all kinds of alternatives for other uses of the propane and other logistics for the propane and really decided PDH is a great answer up there. Especially with somebody partnering with us to develop the derivative business for us. So exciting opportunity, not just for us, but really for the Province of Alberta and allows them to take advantage of their very low-cost resources in that basin, as well.

Thank you. Very interesting.

Christine Cho, Barclays

Good morning everyone. My first question has to do with CapEx. Year to date it's been trending a lot lower than the guidance we got five months ago. And I'm guessing most of it is due to lower than expected spending in the Northeast and for the Access assets.

Is the run rate of spending that we have seen for the first three quarters a good indicator for what to expect in fourth quarter? And how much of the spending would you say has been delayed and this is more of a timing thing into 2016 or is some of this stuff indefinitely postponed until pricing signals improve like you mentioned?

Christine, I would actually say that the maintenance capital piece, a number of drivers on that. But we still have a lot of maintenance capital work out in front of us. And just so you know how we forecast that a lot of that maintenance capital is invested in the inspection and improvement of our pipeline system. And so, we go through this marketing process and we basically have to estimate the number of repairs or anomalies that we will find when we do that inspection. And so that's how we do that.

When we don't have as many anomalies show up or as many repairs required, then we don't have as much maintenance capital to spend. And so we still have quite a bit of inspection in front of us for the balance of the year and we would expect that maintenance capital to continue to be pretty strong going into the fourth quarter. But clearly it's a matter of us estimating at the first of the year the amount of work we think we're going to have. And when we don't find those anomalies then that's money that we put back in our pockets, so to speak.

But we have a lot of work out in front of us for both the third quarter and -- sorry into the fourth quarter and into 2016. On the growth capital side that is somewhat driven by things we would have hoped to have been started on Constitution by now, for instance. And that is projects like that. But there are a lot of projects that we actually are seeing lower costs come in.

And so up in the Northeast for instance on our build out in the Susquehanna County area, the capital team has been doing great job up there bringing in cost lower and as well as on Atlantic Sunrise, we've continued enjoy cost savings on that big project as well. I would say the delay component is probably, that's built in there, is probably Constitution, and the -- but there are some pretty substantial savings that are coming through in our numbers as well.

Okay, great. And then on the heels of that it looks like you funded all the CapEx with debt in third quarter. I am assuming you couldn't really tap the ATM for PZ while undergoing a strategic review, but how should we think about CapEx funding between now and closing of the deal as the parent?

I realize that IDR waivers are going to help some but can you tap the ATM markets given the uncertainty around the future of PZ? And even if you could I'm assuming you don't want to when the units are yielding 11% and credit metrics are high? How should we think about this because I would think you can't solely lean on the balance sheet for the next six to nine months?

Christine this is Don, good morning. First I would say that I think the cost of equity capital is unusually high as a result of the high level of uncertainty regarding the energy industry right now. We expect that will settle down and in time here that the market will certainly reward the advantaged companies relative to those that are less advantaged or disadvantaged.

And cost of capital will make more sense as we move forward. We have a variety of options ahead of us and the ATM is certainly one of those. And we will be balancing obviously cost and risk with a combination of debt and equity to finance and keep WPZ at investment grade ratings.

Can you go into further detail about alternatives to the ATM?

Christine I think the alternatives we have are probably the same as most of the other industry participants, so I'm not going to delve into the variety of options because there are many. But I would say there are a number of options. And we will evaluate all of those in an effort to find the lowest cost solution while balancing risk and maintaining those ratings. And again I would say that obviously WPZ has a supportive parent, as well.

Okay. Last question for me. Can you quantify how much gas was shut-in, in the Northeast for third quarter and for how long? And then also Alan you mentioned that there's a lot of wells waiting on completion. Can you quantify that behind your acreage, as well?

Well we are certainly not going to pinpoint anything for which producers and so forth on that, but Jim Scheel if you'll take that question generally.

Sure for the third quarter in the what I would call the dry Northeast we had a significant amount of volume shut-in. In the Bradford and Susquehanna Counties we probably had about 350 million a day in Susquehanna and upwards of 400 million a day in Bradford. So pretty significant for the quarter shut-ins. Again these are all price related shut-ins.

As you look at the OVM area or the Ohio River supply hub we had about 150 shut-ins starting the middle of the quarter. We will see that as we look at our reduced volume growth year over year in that particular area. And then we saw shut-ins also of about 300 million in the Utica. Those have come off. We are now flowing at full rate. In fact this weekend we hit a Bcf production at the Utica supply hub for the first time.

Right now we have about 900 million shut-in. As Alan indicated at the very beginning of the presentation there is a number of other opportunities for us to grow volume besides the shut-in volumes including uncompleted wells. And that's true both in the northeast portion of the Utica -- I mean the Marcellus as well as they wet Marcellus in the South.

Those give us a great amount of potential for future volumes. And as we look at our rigs counts we see those holding relatively steady as we go from 2015 to 2016, probably actually seeing -- although it would probably stay at 15, it could go up by a couple rigs over the course of that timeframe. Does that answer your question?

Yes. Thank you so much for all of the color. Congratulations on a good quarter.

Jeremy Tonet, JPMorgan

Good morning. Just wanted to follow-up on that last point there a little bit if I could. As far as the 900 shut-in that you talked about, do you have any visibility to that coming back online as far as is there certain price points or other regional deep bottlenecks you think that could help get that flowing? Or any color there would be great.

Alan, would you like me to take that one? Sure. Obviously we have talked about Henry Hub pricing and the basis differentials as I think you are aware. The basis differentials from the Northeast to the market pricing have been significant. Many of our producers have been seeing realized prices in the $0.70 price range and that is pretty significant.

But we have a number of opportunities, as you remember at analyst day, perhaps. There are a number of projects including Constitution and Atlantic Sunrise which we are driving that are going to help bring the critical infrastructure we need to really unlock the value of these resources for our producers. In addition to that you have Rover Rex, Petco Open you've got Leach, you've got Mountaineer.

There are a number of industry solutions coming as we look forward into 2016 and 2017 that will help narrow those basis differentials and really unlock value for our producers in order to not only relieve the shut-in gas, but also really drive up the production rates. I think as we see that come on we have already seen the Leidy expansion, which is 0.5 Bcf per day of incremental production coming online. That will help alleviate some of that as we go forward.

Although we are not giving guidance as it relates to future year volume growth. So I would just say as we see that basis differential come down, if our producers saw the $2 pricing we would see just tremendous volume growth in the North East. And then finally we need to look at winter pricing and weather-related issues as we go into winter of this year could also help improve some of those differentials and increase our Northeast volumes.

Great. Thanks for that.

SO it sounds like some of these takeaway solutions probably, at least a few quarters off, if not a bit longer, so takeaway won't necessarily help in the near term, but weather, if weather can improve that basis that could potentially be more of a near-term catalyst to help you out there?

I would just add to that. Thank you for the question. I would add to that, certainly as Jim mentioned in the near-term we have the Leidy Southeast. That's 525 million a day. That's pretty substantial. And because a lot of that Northeast volume is gathered by our system we should expect to see some of that relief parlayed directly to our gathering assets up there.

As well I would just say, as you mentioned we are in a fairly warm shoulder here and certainly in the cold. Not just for the sake of gas prices in the Northeast, but as well for NGL prices, and particularly propane will see some relief during the winter like we always do. As that propane is called on to deliver local markets, rather than it being transported from the south the way it used to be.

Great. Thanks for that.

Just looking at Atlantic Gulf it was quite a nice quarter there it looks like. I was just curious were there any weather or one-time benefits that helped with the quarter there? Or did the quarter really perform in line with your budget and this is a new run rate to think about there?

I'll take that, I know we have Rory on the line who may want to provide some more detail. No, it was just a matter of these projects really starting to mount up and it really was a matter of having a full quarter. The really wasn't any seasonal issues. In fact volumes on Transco on just a throughput basis were actually a little bit lighter. And that's just based on moderate weather relative to last year's moderate weather.

And remember we don't really make -- Transco doesn't get driven up and down all that much by seasonal, just because all the capacity is sold-out firm. So it really doesn't move with throughput volume that much. But the answer to your question is, no, there was nothing seasonal about it, it's just these big projects all starting to pile up and then really affect the cash flows.

Great. That's it for me. Thank you

Craig Shere, Tuohy Brothers.

Good morning. Congratulations on a nice quarter. Good to be above one times coverage.

On Christine's CapEx question, Alan you referenced some cost savings in Susquehanna and Atlantic Sunrise. And I'm just wondering, is the bulk of that kind of project specific with good execution, or just across the board are we starting to see industry-wide material and labor costs of deflation?

This I would say in the case of the Susquehanna supply a couple of things. That team has really worked hard to take advantage of the scale of the installation of our compression and our gathering lines up there. And they've worked very hard with the Access team to really pull together our very best thoughts about the way to put in field compression.

And so that thinking is really starting to pay off for us out there and just a real intense focus on tight project controls and execution. So without any doubt in my mind in the Susquehanna supply hub area it is better execution by our team. And years of focusing on better projects execution really starting to pay off up there. And it's really nice to see the teams bringing the best ideas of both organizations together and really showing up in a tangible way there.

On Atlantic Sunrise I would just say given the uncertainties that's we have seen and putting in these big infrastructure projects, we have built in quite a bit of contingency into these projects. And as we deliver those projects we are able to, and start to have those quantified, we are able to reduce some of that contingency. But we also did see as we announced earlier, we did see some lower cost on materials, particularly pipe. And so, it's a little bit of both on Atlantic Sunrise, I would argue.

Okay. Great. Where is the currents state of Geismar utilization?

John Dearborn you want to take that, please?

Sure. Be glad to Alan. Thanks. And Craig here is where we are, you will notice in our results we're reporting that Geismar is running -- of course, we sold about 404 million pounds this quarter. I will remind you that's WPZ share of Geismar. So Geismar actually sold more closer to -- well, produced closer to between 450 million and 460 million pounds in this quarter.

We had been running a bit of propane as a feedstock as we bring the plant back into operation. And so there is about another 18 million pounds of propylene that we have been producing there. Net-net when you add all that up and make some adjustments in simplifying assumptions so you can calculate a utilization rate, we, over the quarter, ran about an average of 98%. But let me take you a little further on that.

We are extraordinarily pleased with the Geismar team, the Geismar family there, because they have been setting production records that are yet in excess of that and we have a bit of upside yet to be found in that. We have two transformers that are yet scheduled to be replaced next year that could help the team to further hone or find some increments.

I would say setting the expectation we have a little bit of upside yet on volume at Geismar, but it's running extraordinarily well here during this quarter. And we are really grateful of the team and all the efforts they put into restoring the safe and reliable operations of that unit.

That's great John.

I know it's been a long road there and it's terrific to hear such a god quarter in terms of execution. Last question is, is the PDH project still somewhere in the neighborhood of perhaps $1 billion investment or almost? And picking up on the answer to Brandon's question is there any thought about the gap in timing that could be for a second PDH project after the first one is online?

I'll go ahead and take that real quickly. As to the cost we are not going to disclose that until we go for our FID on that. Really good work done by fine-tuning our estimates. And we do think it's a good time to be building up there. But we have certainly looked around the industry and seeing what is going on in several of the other PDH products and carefully take note of that as we continue to refine our estimates up there.

I would say we've had two things, on one hand we've been taking note of some of the project cost across the industry on that. And on the other hand we are seeing favorable conditions in Alberta, but we really don't want to book that if you will into our estimate and are hopeful that will provide some upside on our cost there. Big investment and we will be providing -- we will not be providing that number just yet until we get to the FID, or at least further along.

On the gap in timing for PDH II. That's a really good question. That's a difficult issue because you don't want to change scope in the middle of your project. I will tell you we have done a lot to make sure that when we do put in the PDH II or if we get to that decision that we've got all the space and auxiliary and the planning both on the propylene side and on the poly propylene side thought through.

So I would just say we are making investment thinking about the future for PDH II, and we do think the returns for a PDH II project would be very attractive. But we're really just trying to keep our focus tightly on the scope for PDH I to start with. I'll just say we are not ready to bring forth PDH II decision yet, but we are planning for the future.

Understood. Congratulations again on the quarter.

Darren Horowitz, Raymond James.

Hello. Good morning. Alan, just one quick question for you. And I realize you are still evaluating like you said that scope of PDH I. As we are trying to put some numbers around the profitability of the volume commitments that you announced, in addition to obviously the low feedstock cost, is the biggest that arbitrage between the level of currently produced finer grade propylene and where you see the growth for PGP and the derivatives?

And that's the big driver? Or as we start to model this, do you see maybe the domestic PGP and derivatives demand significantly increasing, or maybe more margin opportunity like you said for international export? I am just trying to figure out the drivers as to how we should think about the profitability of this plant and possibly PDH II over the next couple years?

Good question. I would say really the party that will be having the lion share of that exposure obviously would be our partner who will be in the business of marketing that product poly propylene product and certainly that's their expertise. They are really excited about the markets.

They think this very low-cost supply can get into. From our vantage point we are going to be very focused on reducing propylene at a low cost and into that contract that is fee-based contract. And so that's what we are going to be very focused on. And while we do have some exposure to the profitability over the time of that, primarily our focus is going to be on just driving volumes at a low cost and selling into a fee-based contract.

Thank you.

Ted Durbin, Goldman Sachs.

Thanks. Would love to ask about the Appalachian connector project. You mentioned that fact that [greasers] are really interesting getting their gas uptown and this seems like a good solution. But there are some compete projects I think that are along the same lines there.

Just wondering where the discussions are with producers, their willingness to commit to volumes, any range of CapEx or returns you might expect in a project like that?

Yes, I would say we have been looking at a number of alternatives on that project. The two drivers I would tell you is this continued demand for natural gas in the Southeast and power generation markets and Transco being so uniquely positioned to be able to expand cheaply out of station 165 to the South. And so that's a huge carrot if you will that we have uniquely available to us and we are using that to bring forward the very best project for the market.

So I would just say it's pretty fluid but that's a very almost immovable opportunity if you will that is uniquely ours and provides us an ability to enter into the very best project. But we want to make sure we can maximize that value when -- after all the other investments have been made. That's the first piece of that.

Second piece of that I would say is that the volumes that we are seeing from the dry Utica are just continuing to impress us and some tremendous volumes up there that we think that cost is going to continue to lower on and those are the drivers. So I would just say, we think the need for this project will be out there, and we think we've got some unique positions that allow us to maximize the profitability when we do decide to invest in that project.

Okay. Thank you for that. Just a little more housekeeping here but now that we have Geismar up and running the operating cost in the NGL and Petchem Services is this a good run rate that we saw in the quarter, or is there any other puts and takes there as we think about going forward?

John you want to take that please?

Sure glad to do that. Great question and thanks for it, Ted. The run rate if I thought about the earnings in the absence of any commodity price volatility, the earnings would be a reasonable run rate to look at for the business coming through this quarter. As I think Alan mentioned, Geismar is contributing NGL services, had a reasonably good quarter for NGL services in Canada with its commodity exposure. Was probably third on the list there.

As you are looking at the cost we may have experienced some costs in this quarter that are just slightly higher than we would have expected for particularly the Geismar unit. But that would be on the order of just a few million dollars. So I wouldn't expect cost to be hugely different going forward as a run rate goes, Ted.

Hope that answers your question.

Perfect. That's it for me. Thank you.

Becca Followill, US Capital Advisors.

Good morning. Question for you only Chesapeake recent negotiation on the Haynesville MVCs. Can you talk about what happens in a low gas price environment? Do they have an option out there or do they need to continue to drill into that agreement?

Thank you. I don't want to be too specific. First of all for 2016, 2017 as we mentioned earlier our cash flow from the MVC does not change, so there is no change on that. And relative to the obligation to drill that is a firm obligation and there isn't any out for pricing.

And then post 2017?

Well 2017 that's when those MVCs ended naturally under the contracts, so there really isn't any change to that.

And the design of the drilling obligation was to ensure that the volumes as the 2017 period ended were at a relatively high level.

Really great trade on that. We allowed them to combine those fields and allow them to put best economics to work on their capital. But in exchange for that we both got a longer-term and better expectations for volumes and growth in the future.

Really while everyone was trying to find a winner and a loser on that, but I would just tell you from my vantage point and believe me we've studied it hard that really is a win-win. And it only makes sense that there is, because when you are forcing people to make uneconomic capital decisions and you allow them to make better capital decisions you've improved a lot for both parties.

Thank you. And can you talk about discussions with them, or are discussions continuing to maybe renegotiate some other of these contracts?

I would just say that we think those were the bulk of the opportunities, but we will continue to look for opportunities if there's growth opportunities. Always happy to work with them. Great relationship developed there and we are very thankful to have them as a customer. We think they are a great operator and have been very fair to work with. So we will continue to look for opportunities, but we don't have anything immediately to offer on that.

Thank you.

Christopher Sighinolfi, Jefferies.

Hey, Alan, how are you? Thanks for all the color this morning. A lot of it's already been hit already. But maybe just two questions from me. The Gulf connector project looks like the proposed capacity there came down quite a bit from where you were before. Just wondering on any color you can offer on that project either costing-wise or counter-party wise or thoughts on initial versus maybe future expansion opportunities on the size of it?

Sure. Thanks for the question. Rory, would you take that question, please?

Sure. Good eye there Christopher. Those numbers did change a little bit quarter to quarter.

When we initially had that open season, we had requests for much more capacity than we could handle. So we moved forward with two parties, and one of those parties has stepped out and decided that they are not going to pursue signing the agreements and making the commitment.

And so we reduced the size of the project. That's the bad news. The good news is one of the other players that wanted to get in, but couldn't, is now going to have an opportunity to come into the project. So the project is going to be a bit smaller, but the returns actually go up on the project. So we still think it's a very high quality project and one we are excited about pursuing. And as you hinted at in your question that does leave us some additional capacity that we have to work with for new opportunities that we think are going to be out there.

Okay. Thanks. Thanks for the color on that.

Switching gears and this is my second question, Alan, I really appreciate the update on shut-ins in the Northeast and your volumetric projections and thoughts around that there. Was curious if we pivot to the West performance, at least as we were thinking about it, was pretty solid mostly on the pricing front this quarter. Just wondering how you are thinking about producer activities out there, potential volume movement as we move into 2016 out there?

Yes. Sure. I would just say the producers just continue to find ways to bring in additional production out there, as well, with developed very few rigs running, but continue to find ways to do that. And, as well, are being very efficient with that.

We are seeing some things that are pretty interesting out there in terms of new development. But, I think our hope for that right now in the current pricing environment is to keep driving our unit cost low and keep the volumes as flat as possible is our expectation. The good news about the West relative to what we are seeing in the East is that there is plenty of takeaway capacity, plenty of infrastructure. The gathering and processing costs are relatively low because it's older infrastructure that was built in a different pricing era.

And so, the variable cost or the cash cost to the producer to produce is relatively low. So we really just haven't seen -- we've seen a very small, almost insignificant, amount of price-related shut-in, just like we would in any winter or shoulder month in the West. But overall very low cost place for variable production and so we really don't expect a whole lot of change out there. So lots of reserve.

Lots of known reserve and I think if we do see a price signal producers are ready to jump on it. But we are not expecting anything dramatic out of that area. And really proud of the team for working hard to keep our cash flows as steady as they have. Considering how low the NGL markets have been.

Great. Thanks a lot Alan. Thanks for the color this morning.

Sharon Lui, Wells Fargo.

Hi, good morning.

Just wanted to get your thoughts in terms of the pace of additional capital spending for gathering and processing assets in the Northeast give the current environment? Specifically maybe if you could talk about the investments tied to the Utica with Chesapeake and how you see maybe that $600 million of capital ramp up over the years?

Great question. I would just say that we are really excited about that acreage dedication and think that once the infrastructure demand, or sorry the infrastructure constraints, are lifted out there and the firm obligations that various customers have out there, they will be working to take advantage of that firm capacity that they have. And so feel pretty good about the prospects for that.

But I also would say that the way we are structured on that we are not obligated to go spend that money out in front of the production showing up. And so we have ability to step into that so we are not going to be out spending capital in front of that drilling from a risk standpoint. We do think that's very, very good acreage. Some really impressive cost levels available to it and so we are really excited. We have a very good vantage point of what people's production versus cost levels are and we're very excited about that acreage.

Thank you.

John Edwards, Credit Suisse.

This is Bhavesh instead of John. Most of our questions are answered. Just a question on Geismar, given the price we saw, curious to know your views on prices going ahead for the next maybe few quarters and whether there are any opportunities to maybe have any contracts against part sales?

John you want to take that, please?

Sure glad to take it and thanks for the question. First of all we are really pleased to be serving customers again back in Louisiana. It just happened that as we brought Geismar back on, so did Evangeline come on and so the market was well served. And I think looking back over our shoulder here in the last quarter the ethylene market was well served by production in that there were very few shutdowns or unexpected shutdowns. And I think in at least one of the months I want to say it was July we saw industry high production.

So I think all of that led to perhaps a bit of oversupply or slightly long market in ethylene and the necessary price adjustments that occurred during the quarter. I'll note though that over last weeks, two weeks notionally we recovered some of that price. It's come back up probably on the order of about a nickel at this point.

And so just to take the conversation a little further forward to answer your question, finally, as we look forward and we look into we call it the second quarter of next year a couple of factors that will play positively is a very high turn around season. And I think another factor that will play positively is relatively low inventories of ethylene by any public accounting, so certain that people are doing exchanges to fill their needs in next year. But low inventories and high shutdown rates, planned shutdown rates certainly bode well for the supply demand balance, I think in our favor. I hope that brings the necessary color and that's the way we see things playing out here over the next couple of quarters.

Sure and are there any opportunities to tie in like contracts, pricing based contracts on these?

Thanks. Forgot to mention on that. We are always in the marketplace looking to secure the best value for our ethylene out there. And we have been in conversations in I'll say past quarters, including this last quarter and we continue to have conversations with customers over whether or not they desire to enter into any contracts all including fee for service contracts. And so we are trying to lock in some of the margins into the future.

Of course, in this dynamic price environment everyone sits across the table with rubber guns pointed at each other and we will see where those negotiations go over time. We are always looking when it would appear to be favorable to us to lock up solid volumes and solid margins on Geismar 1.

Great thank you and thanks Alan and congratulations on a great quarter.

There are no further questions at this time. Please continue.

Okay great. Well thank you everybody for joining us this morning. We really appreciate the interest and appreciate your respecting the scope of our discussion this morning as well, so thank you for that.

Also just want to say big thanks to the team here at Williams. Great execution and just a lot of great focus on delivering the strategy that we have before us. Appreciate all their attention to focus despite the many distractions we have had. With that thanks again for joining us this morning and have a good day.

Ladies and gentlemen this does conclude the conference call for today. You may now disconnect your line and have a great day.