Williams Cos Inc (WMB) — Q2 2015 Earnings Call Transcript

Thank you, Julia. 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 and CEO, Alan Armstrong, will speak to you 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 Purgason 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 General Accepted Accounting Principles. Those reconciliation schedules appear at the back of the presentation materials. So with that, I'll turn it over to Alan Armstrong.

Great. Thank you, John and thanks everybody for being on the call this morning. We've got a lot to cover today, but before we discuss the second quarter results, I'd like to briefly comment on the WMB Board Strategic Alternatives process that's underway. As you'll recall, Williams announced on June 21 that it planned to explore a range of strategic alternatives that could include among other things, a merger, a sale of Williams or continuing to pursue the company's existing operating and growth plan. A robust competitive process, we believe, is the best way to get the best options on the table and to maximize shareholder value and the board's review is meant to accomplish just that. The process is underway and we're pleased with the progress to date. As I'm sure you'll understand, we do not intend to comment further on this thorough review of these alternatives before the WPZ transaction today, and we won't be commenting further on that until the process is completed and a more definitive course of action is determined by the board. In the meantime and I assure you that our focus remains on maximizing value and we continue to act in the best interests of our shareholders as we move through this process. Now, let's move on to the first slide and talk about the tremendous growth we enjoyed in the second quarter and a strong trajectory of growth in front of us. The package, here in the second quarter, certainly demonstrates the benefits from our clearly defined strategy of capitalizing on the significant natural gas market growth by connecting the very best supplies to the best markets. We've been on this strategy for quite some time and it's really starting to deliver a lot of significant growth, particularly in our fee-based revenues. For this quarter, WMB's adjusted EBITDA was $1.02 billion, up 32% versus the second quarter of 2014 and at WPZ, we had a record distributable cash flow of $701 million and delivered an adjusted EBITDA of $1.01 billion, which was driven by fee-based revenue growth. Overall, we had solid performance from four of our five segments, and the performance was delivered despite the fact that volumes were lower in some areas, as a result of price-related shut-ins and also because we are operating in a historically low commodity price environment. So when we say lower, we mean lower than they could have been. We actually had very significant growth in a lot of those areas, but certainly, significant impact from volumes being shut in from gas prices. Let me walk through some of the numbers here. First of all, in the Atlantic-Gulf, really the strong performance from Atlantic-Gulf, $389 million in adjusted EBITDA and this was up 44% on fee-based revenues from new projects. And this group is managing a tremendous amount of growth, and just keeps on delivering this growth in a very safe and reliable manner, so couldn't be prouder of all the great work going on there. At Access, $345 million, up 25% on fee-based revenue growth, and I have to say that certainly, we're pleased with the contributions being made from this acquisition, and it's not just the predictable growing cash flows that we all expected, but probably the piece that's been most impressive from my perspective is the great injection of new talent and ideas that are coming from our new colleagues at Williams who came from this acquisition. So integration and the synergies are going even a little better than expected there and we continue to see great opportunities out in front of us, as we take in a lot of the ideas and we merge the entities, particularly seeing a lot of opportunities in the Northeast and we're really starting to explore some of the synergies within our operational excellence and E&C areas as well. In the Northeast G&P, this is $92 million, up 21% and impressively on 54% higher Ohio Valley Midstream gathering volumes, so really starting to see that come through and noted that the team had a record volume there just this week, and really pushing out some big numbers there, as those volumes start to come in and I'll let Jim Scheel address that later. In the Northeast, in general, I would say that as the face of energy in the U.S. has changed over the past years and where it's coming from, we have certainly worked very hard to get ourselves into a position to unlock the tremendous value of the Marcellus and the Utica areas like never before. We have put ourselves in a position and we are the leading gathering systems in the Northeast. We believe our shareholders are going to see great long-term value from this tremendous position that we've been able to accumulate in the Marcellus and Utica position. On to the West, EBITDA was $150 million, and this was down 27%. But as we mentioned, this really was driven by lower NGL margins and so that really was the big story out there. But I will tell you, from an operational standpoint, we continue to see great performance on both the reliability and safety of our operations. In fact, our gathering volumes were flat compared to the prior quarter and as the year-over-year quarterly comparison and our equity gallons, so the gallons that we take for our account, and our plant inlet volumes were both higher on a year-over-year comparison. So West continues to hold its own, but certainly impacted by lower prices in the second quarter. And then in the NGL and Petchem space, the adjusted EBITDA was just $33 million and that number is certainly lower than last year due to the absence of the business interruption proceeds that we reported in the second quarter of 2014. The near-zero prices for propane that we saw in the Edmonton spot prices from our Canadian operations also factored in. This was offset a little by Geismar, as Geismar began to ramp up here in the second quarter. But really that was probably the disappointment from my perspective for the quarter, was not getting Geismar up as soon as we would have liked to, and we did have some very serious electrical power problems on the feed into the plant and we've gotten that behind us now, but it has certainly hampered our operations there in the second quarter. I want to reiterate the overall growth our teams are delivering, and we've begun to enjoy the fruits of our labor as we manage the tremendous growth that we really have worked hard to win on our Transco system in the deepwater and in the Northeast G&P. We expect big improvements now in our NGL and Petchem services group for the balance of 2015, with Geismar now online and Horizon coming on towards the very end of 2015. Moving on to the next slide, sorry I'm going back to stay back on this slide. When you look at our results this quarter, you'll see that our fee-based revenue growth really is coming through and pretty powerful the way it overpowered lower commodity prices this quarter. It's important that we are executing on our strategy to shift our business to fee-based revenues and this quarter is an example of where that really pushed through some really strong headwinds on the commodity prices. At WPZ, our fee-based revenues were up $537 million or 72%, and while a lot of that was driven by the Access acquisition, a lot of this came through our major projects that are ramping up. If you look at WPZ's historic assets, our fee-based revenues were up 17%. This doesn't include fee-based revenues from things like our proportional JVs. For assets like Discovery, which of course got a big boost from the Keathley Canyon project coming on, and our UEO investment in the Utica, big improvements in fee-based revenues there but given the way we account for that, it does not show up in that $130 million of incremental fee-based revenues. On the NGL margin side, we certainly experienced some serious headwinds and our NGL margins were down $56 million here for the second quarter of 2015. In fact, we only recorded $38 million of NGL margins for the quarter, and it's been a long, long time since we had that low a report for NGL margins. The Geismar plant did ramp up in the second quarter. And while that was slower than we expected, it is now online and consistently operating at or near its full production capacity, and we expect significant contributions from the plant in the second half of the year. On a personal note, I'd just like to recognize that leadership team at Geismar has been through a lot. I want to recognize the fact they have really kept their eyes on getting that plant back up in a safe manner, and they continue to hit some really impressive safety records there, despite a tremendous amount of activity going on at the plant. I can't tell you how hard that team has worked to get the plant back up and running safely, and I'm very appreciative of their efforts. So let's move on to guidance. First of all, we are reaffirming our Williams dividend guidance for 2015 through 2020. I would point out that the guidance that we've provided is based on the assumption of completion of the acquisition of the Williams Partners public units by Williams. We are also reaffirming our adjusted EBITDA guidance for 2016 through 2018, although we are lowering the 2015 adjusted EBITDA midpoint guidance we issued in February by about 6%. Of course, this reflects the lower commodity prices that are in the market right now for the balance of the year, and as well the problems that we had at Geismar and the ramp-up in the second quarter. The Geismar impact is already in our second quarter, and the balance of that lowering is coming through commodity prices for the remainder of the year. We also are reaffirming our dividend of $0.64 per share in the third quarter of 2015, or $2.56 annualized, and our dividend of $2.85 for 2016 with 10% to 15% annual dividend growth through 2020. A tremendous amount of growth continues to come at us. We are very excited about how the major projects that are now contributing on the fee-based revenue side are starting to drive our business and also a lot of projects that are on our list right now that will continue to build the stream of growing cash flows for years to come. Moving on to the next slide, and this is slide four. First of all, the projects that are beginning to contribute. We said back in the first quarter at our Analyst Day in May that the demand side of the natural gas market is driving our project list and we are reinforcing that here again today. As we look at some of the significant projects that we put into service here in the second quarter, it's easy to see that we've really been executing and delivering on these projects. In the second quarter, for example, on our Transco system, we delivered three very important projects: the Rockaway Lateral and the Northeast Connector project that goes with the Rockaway Lateral, which are independent projects. The Mobile Bay South 3 project was brought into service in April of 2015, and that was on time and on budget. Our CPV Woodbridge project was also brought into service on schedule and below budget. Our New York Bay expansion project, just one more example, we did make our FERC application in July recently. A lot of hits keep coming on the Transco side. Gulfstar One, these big projects we put into service at the end of the first quarter really provided a lot of strong contributions in the second quarter. The production volumes from the Tubular Bells prospect continue to grow. In fact, the fourth well was just brought on recently by the operator. Our Discovery Keathley Canyon Connector certainly drove our proportional JV EBITDA in the quarter. These are fee-based revenues coming from Exxon's Hadrian facility and Anadarko's Lucius facility. Our Discovery system is running completely full now, and we are really positive about the prospects that sit around the Keathley Canyon system and the kind of high margin business that will continue to flow in on this system that is so well-positioned now in the Keathley Canyon. We also completed an acquisition of the Fox Creek gathering and treating system. This expands Access's Eagle Ford footprint. As we said in the last call, we expected to see producer systems come into the M&A space, and this acquisition is a really good example of that. This is a bolt-on to our business in the Eagle Ford and a very nice addition of predictable fee-based cash flows coming in there. We also acquired some additional interest in UEO and that interest is now up to 62%, and this area is really enjoying tremendous volume growth here in the Utica. On Geismar, as I said earlier, Geismar is now producing near its full expanded capacity. Our production here on Tuesday was about 5.27 million pounds a day of both ethylene and propylene and doing very well there. We'll continue to optimize between our ethylene and propylene production depending on margins. Coming soon, as we look forward, there's a lot of exciting projects left to come on for the year. Our Virginia Southside project is expected to come in-service in the third quarter of 2015. Our Leidy Southeast project is expected to come on in-service in fourth quarter 2015. We are making good progress on those items. Our Canadian off-gas processing, we're making great progress towards bringing our CNRL Horizon project startup in 2015 and our Kodiak tieback, which is a tieback to our Devils Tower platform, is expected to come on in the fourth quarter of 2015. These tiebacks we're getting to experience out here are really powerful tools in terms of driving a return on our business, as they require very little capital and large amounts of fee-based revenues. Our Devils Tower field is now nearly 12 years old and this is the fifth field to be produced from this platform. Gunflint will be the first tieback to our Gulfstar platform, and that is expected to come on in 2016, and I would tell you that is well ahead of our original expectations for that investment thesis in Gulfstar. We are enjoying the benefits of really learning to aggregate and tie back production in these big deepwater spars. This list is certainly very extensive, and I'm very proud of our team's progress as they really are delivering the growth that's out in front of us now. Moving on to slide five, we've said many times that Williams is uniquely positioned to connect the best natural gas supplies to the very best markets. We've focused our strategy on natural gas and are positioned to take advantage of the demand growth that's both here today and coming in the next few years. We have bought and built our way into being the largest gas gatherer in the largest and fastest growing gas supply basin. We have built Transco into the largest and fastest growing natural gas pipeline. Our second quarter results are a reflection of the fact that our efforts are driving tremendous cash flow growth, despite stark commodity price headwinds and our large scale fee-based projects are meeting or exceeding our expectations as they begin to contribute significantly. Revenues from big projects like Keathley Canyon and Gulfstar are really performing well, and in many cases, as I said, going beyond our expectations. Our focus on fee-based growth means that we're expecting about 89% of WMB's 2015 through 2017 gross margin to come from fee-based revenues. We have $9.8 billion of total growth CapEx from 2015 through 2017 and 96% of that is focused on fee-based projects. We have committed and potential growth capital through 2020 of over $30 billion. This book of business is rapidly expanding. We really haven't updated that guidance in quite a while; however, I will let you know that this backlog of projects continues to grow, and we have not updated that just because it is so large to start with, but we do see great opportunities in our business, both in terms of known projects and potential projects expanding. Let me sum things up: with over $1 billion of adjusted EBITDA for the quarter and the record quarterly DCF, both driven by strong fee-based revenue growth, we are very pleased with our second quarter results, as the headwinds of lower commodity prices are being overwhelmed by the tremendous growth in fee-based revenues that will continue for years to come. Some serious headwinds have been out there, but it's impressive to see all these projects taking hold and making our NGL margin somewhat insignificant against the growth of our business. The growth we are seeing demonstrates the performance of our premier asset footprint in the natural gas infrastructure space, which includes the fastest-growing pipeline in the U.S. and the largest and fastest-growing positions in the tremendous Marcellus and Utica basins. With that, as we move into the Q&A session, I remind everyone that the purpose of today's call is to discuss our operational and financial results for the second quarter of 2015. Please limit your questions to these topics. We won't be taking questions on the Strategic Alternatives process or the WPZ transaction. The focus of our strategic alternatives review remains on maximizing value, and that the board and management team will continue to act in the best interests of our shareholders, and we are excited about doing that. With that, let's move on to the second quarter Q&A.

Good morning, everyone.

Good morning. Good morning.

Actually, a big picture question first up. Alan, you suggested that the backlog is actually growing, no change to the official guidance. What – just kind of qualitatively, when would we or should we expect some updates there, and is it just as things come to fruition or is it more of a quarterly type event?

Yeah. I would say there's really two things you should see moving there. One is that many of the projects that are in our potential backlog will start to be moving into guidance as we close deals. A lot of big opportunity right now, particularly in the Northeast, as well as Transco, which continues to be very successful in contracting for new business along its system. You'll start to see some business migrate from that $30-plus billion into the guidance numbers. So in terms of timing, we'll update that as those deals are closed. On the potential bucket, we see the demand side of our business picking up significantly, and we are extremely well-positioned to capture a lot of that. We are seeing a lot of additional interest in that, and we just don’t update that every single quarter. One reason is that it’s so large already, it's not going to drive all that much but as we see significant projects move in, we're beginning to expand that. The first thing you should expect to see in the near-term is projects in the guidance side starting to build.

Okay. That's actually very helpful. And then, somewhat related, you mentioned Access operational synergies kind of showing up here recently. Is there any detail you can provide around that or any specific synergies that you want to highlight?

Sure. Thank you for that question. We had identified that we would have 25 last year upon the acquisition and then 50 on the merger. Right now, we have in our sights a number that's better than 50 for 2015. Some of that will show up in 2015, but some will be full run rate next year, making for a larger number for next year. A lot of those things are on the support services side. We've also reorganized leadership in the Northeast under Jim Scheel, so we're starting to look at the synergies available to us in that gathering area, and those will be improvements in 2016.

So stay tuned for the 2016 guidance number on synergies?

Yes.

Okay. Thank you. That's good for me for right now. I'll hand it over.

Okay.

Thank you.

Hi, good morning guys. A couple of questions on my front here. I was wondering, first, if we can sort of talk about the MVC exposures at the old Access assets. There's been a lot of discussion about it lately. When you look at your exposures relative to your producer customers, do you think of it on a basin-by-basin basis, and if there are any regions where it's possible the producer customer has low to negative IRRs? I guess that likely is the case in Northeast, but I was wondering if you could comment on any regions where you see some weaknesses where producers are likely to be below MVC if commodity prices continue at current levels, or possibly get worse?

If you are speaking of MVCs outside of the Chesapeake business, we do have some shut-ins in the Marcellus area. Those contracts are under cost of service. So the value proposition would come back to us when that rate gets adjusted on an annual basis. As to MVCs in the Northeast, we are well above those even at current shut-in production levels. The volume support we have will come when the big pipeline projects come into service and there are known obligations to volumes into those downstream pipelines. Constitution, Atlantic Sunrise, and Leidy Southeast obligations into those projects will drive some support for volumes just because we know what the obligations are on those pipelines.

I was just going to add the two areas where we've got MVCs, the Barnett and the Haynesville, are obviously below the MVC in the Barnett. We do look at them on a basin-by-basin basis. Our view is that drilling in the Haynesville will come under the MVC that's growing in that area. You're seeing that in the volumes showing up. The Barnett is just not attracting the drill bit right now, and we don't think it will for a while, but it still is producing good cash flow in terms of its lifting cost compared to the current netbacks.

So just to confirm, the Barnett is not attracting the drill bit, likely negative returns for your producer customers and is that the case also in the Haynesville? And that's why you're saying it's going to probably come under the MVCs at some point?

I wouldn't speculate on Chesapeake's returns in that area overall. I'll just note that the Barnett's producing good free cash flow in almost any environment and that the Haynesville is attracting drill bit currently.

Okay. My follow-up question was about the big pickup in ethane volume sales in the Northeast. I was wondering if you could discuss the big shift. Is it something that you did, or is rejection suddenly not happening? Could you provide some color on that?

One thing we didn't mention was that towards the end of the second quarter, we brought our ethane pipeline in the area into service. We are now running our de-ethanizer, and that ethane pipeline feeds into some of the contracts where producers have to sell their ethane. This is what's driving that. We're now getting incremental fees for those ethane services that we wouldn’t have been getting until that pipeline and the de-ethanizer replacement service was operational.

Okay. Final question. I realize you can't talk about the strategic review process and so forth. I was just wondering if you'd confirm whether a data room is currently open or not.

We're not going to talk about that, Shneur. We're going to have to hold a very firm line on answering your questions on that.

Okay. No problem. Thank you very much, guys. I appreciate the color.

Thanks.

Good morning.

Good morning.

Just for the strategic process, I appreciate you might not be able to say anything here, but I wanted to bounce a couple of thoughts. Is there anything you can share with us as far as what the timeline might be there? Also, you talked about some smaller bolt-on acquisitions. Does this process interfere with any larger M&A aspirations you might have?

I'll take the second question just to say that it is business as usual in terms of our bolt-on M&A efforts; thus, we continue to execute on our plan and our strategy in that regard.

Okay, great. Thanks for that. In the Northeast, it looks like gathering volumes were down a little bit quarter-over-quarter, but processing was up. I was wondering if you could share a bit more about what you hear regarding producer customer activity in the back half of the year, and how you guys are thinking about volumes at this point?

Sure. I'll take that quickly and then if you've got some more detail, Jim Scheel can chime in. The gathering volumes and production available is actually growing rapidly. The big increase we had in OVM volumes reported was a 54% increase in gathering volumes in the Ohio Valley area. The only impact was from shut-ins due to some very substantial shut-ins that are due to lack of infrastructure availability. We hear the term gas price there, but in fact, it really isn’t the gas prices; they are enjoying $2.70 gas price there. They would be pulling everything they could, but due to the constraints and lack of takeaway infrastructure, they aren't getting that pricing level. Some producers are starting to bid against themselves as they add additional supplies to the market and so they’re taking actions to curtail that production. They continue to develop the reserves and are preparing for the upcoming big pipeline projects like Leidy Southeast, Constitution, and Atlantic Sunrise to come on, as there are significant volumes and gas purchase contracts that will stand behind those.

Great. Thanks for that.

No, I'm sorry. I think Alan got it, thanks.

Just a follow-up on the Northeast. You outlined some cost savings that the Access merger brought into the fold. I was wondering if you could talk a little more about the commercial synergies you might see. During the Analyst Day, you talked about specific hubs and related opportunities. Do you have any further thoughts on joint commercial opportunities after the combination?

Sure. A lot is happening there. Probably the most obvious to discuss is in the OVM, where Access's North Victory system sits just north of our OVM system and extends the area’s reach. Additionally, the ACMP team's capabilities of building out the gathering systems and the modular compression to attract those volumes are well-known by producers in the area. We have a really big list of producers we are working with right now to leverage off the combination of those existing ACMP systems feeding into OVM, as well as the expansion of those systems into new acreage that's been taken up there. A lot happening on that front. It boils down to the expansion and reach of our system, which just expanded significantly into the OVM processing and fractionation complex. Also, the Utica dry is starting to exceed expectations in terms of production. We are extremely well-positioned on capturing the Utica dry business. Finally, the joint ventures between Blue Racer Midstream and the UEO system are both well-positioned in the Utica and enjoying growth. We’re looking for ways to combine those systems into a way that provides a super-system for the area. There's a lot happening, and we couldn't be more excited about the number of opportunities coming in Jim Scheel's area.

Do you see more opportunities to take advantage of that liquids production, extending your footprint further downstream?

There are a lot of great projects out there. We are certainly working with our producers who control those liquids to find the right opportunities and are encouraging development in that infrastructure on the downstream side. From our vantage point, we're looking to encourage the development of that infrastructure, but it's really our producers' volumes, so they are the ones who need to speak for support of those projects.

Great. Thanks. Just one last one if I could. Regarding Geismar, how close will Q3 2015 be to a complete full quarter? Is the O&M run rate in Q2 a good run rate for the segment?

Let me have John Dearborn take that.

As Alan mentioned, we made about 5.27 million pounds per day on Tuesday. I think that would be a reasonable rate to expect because we've been able to demonstrate this for long periods, in excess of a week through the past several weeks as we brought the plant into full operation. We are encouraged where we are today. I think that's a fair way to look going forward. One thing to consider on the O&M numbers is we faced a power failure during the second quarter, which saw some higher O&M costs. I'm venturing to say somewhere in the range of about $6 million to repair furnaces, which were unexpected. It's a pretty normal situation when facing a significant power outage that you have to go in and repair the furnaces, and it did take some time and money in the second quarter.

Great. Thanks for all the color.

Thanks.

Good morning, guys.

Good morning, Craig.

I got one follow-up on Brandon and Jeremy's Northeast questions and then a couple on commodities. Picking up on the Northeast opportunities, there's been a couple of absolutely massive Utica dry gas wells, I think one was just reported this morning, but a couple of really big ones in the last week. Is there any way to give a rough range of the potential size of midstream service opportunities in the dry gas area out there?

Great question. The challenge is getting takeaway capacity out of the area. There's no doubt that the potential is there; nobody doubts that up there. In areas where you have established pads for the Marcellus wet and even some of the Marcellus dry, the ability to take advantage of existing pads and infrastructure to bring that production on is where we think a lot of that big production will come on when there's adequate market demand. The market supply side is also desperate to see those expansion projects come online. We have multi-billion dollar opportunities we are looking at for expansion of our systems driven by both the Utica dry and where it overlaps with the Marcellus wet. We're very far along in negotiations, as I mentioned earlier; that's where you ought to see our growth coming in terms of potential projects.

That's helpful. And then on the commodities side, a couple of related questions. First, on the $150 million of EBITDA guidance change relating to commodity price deck, can you roughly split that between Geismar olefins and all other, and elaborate on what you're seeing as drivers for olefins crack spreads into 2016? Are you still expecting at least a couple cent premium to Belvieu there?

Of the $150 million change in commodities since we issued that guidance in February based on the price outlook, I'd say something under $60 million was olefins, and the balance was NGL margins and related curtailments.

I got you.

The big numbers are on the NGL piece and then the Geismar piece, which is really behind us now. The PDH and Geismar 2 projects are making great progress in both areas, especially putting finishing touches on the contract for polypropylene at PDH. We expect to bring that forward in August for further consideration on that project. We're excited about that progress right now. On Geismar 2, there is very strong interest from two parties that we've narrowed that down to. We are in serious diligence now with one party, and there is a lot of interest on both sides for moving forward with the Geismar 2 project. Great progress on both fronts.

Great. I’m sorry for the barrage. One additional item, I noticed that the guidance for 2015 has come down, while 2016 remains unchanged; I think there was over a 30% increase in expected crack spreads. I was wondering if you could provide some additional color around the drivers you're seeing in 2016 at Geismar.

There are a couple of things. First, about the earlier answer I gave: the power outage we faced was related to a utility power failure to our plant, not an inside issue. Second, the premium has essentially fallen back to more normal levels in the $0.01 or $0.02 range with Evangeline running. Remember Louisiana is a thinly traded market, so you don't get every day visibility into that premium. Our customers have a call on about 80% of our production. We have only 20% to sell into the spot market and during the second quarter and through June and July, we satisfied our full contract requirements.

Got it.

As to the 30% increase in crack spread: earlier in the year, we stated we saw low inventories for ethylene and expected demand growth, as well as disruptions in supply that might drive tightness in ethylene, helping to improve that situation. That hasn’t materialized just yet, but as time passes into next year and subsequent years up until when the new crackers come on, you would expect that continued demand growth would drive margin growth.

Great, thank you very much.

How are you doing, gentlemen?

Good morning.

A couple of quick questions. Could we get a rough debt number or debt number for WMB or WPZ?

Hey, Ross. This is Don Chappel. The debt numbers are in the 10-Q that we filed this morning. All that detail is out there.

Great.

Long term debt at Williams is $21.285 billion.

Okay, great. I'll check the Q on that. And on the fee-based?

The fee-based percentage for this quarter and for 2015 is going to be in excess of 90%. I think somewhere in the 92% range given that Geismar was down for a portion of the year and kind of where commodities are. We’re estimating or forecasting the fee-based percentage to be just a little below that over the three-year period, 2015 through 2017 is about 89%.

Okay. And the Geismar profits?

I don't think we've disclosed the specific Geismar profits, but we did indicate that there was $50 million of gross margin for the quarter.

Okay. All right. When I'm looking at the press release and it goes over the Geismar incident adjustment of the negative $126 million, how do I think about that?

That was business interruption and insurance proceeds. A year ago, the plant was down, but we had business interruption insurance. We estimated that during the second quarter of last year that we had a right to about $122 million. Since that date, we've collected more than $420 million. We have a claim for $20 million that is still being negotiated with the insurer, but the vast majority of our insurance claim has now been paid.

Okay. Looking at this, I mean it looked like it was $96 million in the second quarter 2014 and then it swung to a negative $126 million for the second quarter of 2015, so.

Again, there's a difference between GAAP and adjusted. For financial statement purposes, we record the cash, the insurance proceeds when we have a signed settlement agreement with the insurers or we actually receive the cash. For adjusted earnings, we accrued it based on our expectation of collection. Our Investor Relations team can walk you through the GAAP to non-GAAP numbers.

Okay. Thanks. Just one more, do you guys know the timing of when your strategic review will be complete?

There is no timing announced.

All right. Great. Thanks, guys.

Okay, thanks very much, Ross.

Hey, good morning, guys.

Good morning.

Hey, Alan, when we spoke in April, I think you were saying this was the earliest time you guys had locked up all of your Conway storage and rail racks for some of the Northeast NGLs. If you look at some of the E&P numbers, realizations were pretty awful. I was just wondering how you see that shakeout as we get into the shoulder season of 2016, right, Q2, Q3 without any incremental export capacity coming until the end of that year and what impact that might have?

That's a great question, and certainly one that many should pay attention to. Even though no new export capacity is coming online, there is some existing capacity that hasn't been fully utilized. I think the limitation has been on ships available to carry that out. So, keeping a close eye on the availability of the shipping capacity is key to opening markets. Other than that, I don't see changes in storage capacity or rail loading capacity. I would say everything that can move and store NGLs is in full utilization and building up behind the next bottleneck, and that’s the export capacity.

Okay. And then my follow-up is you obviously saw a large proposed merger transaction up in the Northeast with two of your competitors. From your standpoint, how does that change the competitive landscape in the Northeast regarding competing for projects? How do you see that from your perspective?

I don't expect a whole lot of change. We're excited to see Marathon bringing their business, as they've always had an interest and are well positioned to handle much of the heavies and condensate in the area. We’re excited to have them engaged in providing takeaway solutions for the area. In terms of competition, we have major acreage dedications already, and it’s about getting the takeaway capacity coming online for the Northeast and even for the Marcellus and dry Utica, which will drive our ability to provide significant supply infrastructure as markets open. That will really be the determining factor more than the competitive landscape.

Okay, got it. Thank you.

Thank you.

Hi, good morning. Just a quick question for John. Perhaps you can talk about your outlook for NGL pricing up in Canada and how the recent weakness could impact the returns of some projects coming on in the back half of the year?

It's a great question. It's important for us to remember that we make money on the spreads between gas and what is substantially an olefin stream. We make money between gas and propylene and gas and uplift. We are protected on core price on our ethylene production up there in Canada. The substantive exposure we face that causes concern is on the NGL portion of that production. Today, propane is not returning a cheap value, therefore, the product is not making money for us in the Canadian pocket at this juncture.

Do you see any potential catalyst that would decrease that propane oversupply in Canada?

The only thing we seek through is whether things would ever reverse, but right now the output ceases to be needed in Canada. In the absence of any large pipeline able to move propane to the Midwest or the United States, it's hard to imagine anything alleviating the situation on propane.

Okay.

We've got our eyes on that, and as John mentioned, there are ways we're looking to mitigate that. Part of the effort is to get the propane back into the fuel markets. We want to see that propane barrel back into the gas stream where it initially came from, and I think we will see efforts from people to help make that happen.

And just a follow-up: How should we think about the near-term returns from the Horizon investment?

In the near term, while NGL prices still are at these levels, I'd suggest they will likely fall short of what long-term returns would be. Think of Horizon as being about a third of what we're doing right now. That gives you a view on both the margin and volume.

To remind you, the bulk of income on that asset comes from the propylene and butylene streams, then the ethane which has the floor contract already embedded. That’s where the bulk of the value is. The propane stream, while depressed now, is not expected to contribute significantly to value in the future.

Okay. That's very helpful, thank you.

Thank you.

Hey. Good morning, Alan. Thanks for the color this morning.

Good morning.

I have a few questions. I promise to be quick. Following Shneur's inquiry about the relationship with Chesapeake, I'm just wondering – you were speaking specifically or inquiring about the MVCs. I'm curious sort of more broadly about the counterparty exposure you have to them. There have been visible setbacks for them over the last couple of months. Within that context, have you tempered at all your expectations for cost of service growth in the Northeast? I know your guidance has remained unchanged from 2016 to 2018, but wondering if there was any movement within that on cost of service efforts, given the CapEx headwinds?

On a broad level, I can tell you we continue to enjoy a good relationship with Chesapeake. We're very impressed with their responsiveness to their situation and see them working hard. They've announced an asset sale in the quarter and continue to seek opportunities. We remain constructive to help support and find win-win ways for them to add volumes that help offset some of those obligations.

Our cost of service growth is really in our Marcellus north area, where we're adding some compression to continue to support the development. That area does deliver solid market fees. We had a fee reduction in the first quarter; part of it due to high volumes drives that fee lower. We continue to see particularly those Northeast contracts as strong pieces of our portfolio; we also anticipate good growth from Chesapeake's activity.

Great. Thanks for that color. I guess, sticking on the Northeast and this is sort of a follow-up to Craig's question about the monster dry gas Utica wells we've seen recently. From a gathering perspective, can you address those types of wells or pads with the same type of infrastructure you've been using? Is the magnitude of production from those wells going to alter how you service them, and does that have any ramifications on either the type of return or profile of return you might see gathering for such wells?

Certainly already having the right-of-way and infrastructure in the area is beneficial. As you know, in much of our OVM region, we have a loop system, allowing for one line to be dedicated for rich service and the other for lean service. The size of some of these wells will require significant expansion of those systems. Having the right-of-way established and the interconnect into multiple takeaway pipelines will be valuable. Up there, real estate is key, making pads and pipelines necessary. I expect existing infrastructure will be capable of handling added volumes until producers start actively drilling in those areas. In the long view, we'll certainly need additional takeaway capacity established out of the area.

It's a great example of where Access legacy and Williams fit together. The initial wave of development will utilize existing plumbing; as we have pipelines and rights-of-way to provide near-term service. Then we can wait for the larger infrastructure investment to meet those big wells. I think we're positioned well to capture that business and provide near-term service to producers driven by the economics.

The impressive elements of all of this Utica dry gas not completely apparent is its capacity to blend into gas pipelines. The big dry gas provides capacity to put ethane into long-haul pipelines and meet specs. This alleviates storage issues or ethane feed into large crackers being developed, as gas pipelines can temporarily take on that storage capacity, meaning ethane can easily return to the gas stream if needed.

That's a great point, Alan. I guess my final question: you mentioned takeaway from the basin; could you provide an update on Constitution? During your Analyst Day, you were waiting or hopeful for a New York DEC permit in June. I know that didn't happen, but any update on where the regulatory process stands for that project?

We've been working closely with the DEC and remain optimistic about where we stand and would hope to see a permit very soon.

If it doesn't arrive in time, is there a cascading effect on the timeline you've outlined for in-service, or are we near that in your mind?

Right now, we feel good about the timeline we published for getting that finished by the end of 2016. I feel we’ve got a good path to get that done; there are tight windows we anticipate pushing through here and we hope for something positive in the near future, but we're confident at this time.

Great. I appreciate your time. Thanks for taking my question.

Thank you.

Thank you all very much for joining us today. We have tremendous fee-based revenue growth that's coming on, and we're excited to have the Geismar expansion behind us, and really impressed with the execution on these major projects out in front of us. We’re continuing our fee-based revenue growth; 17% in the first quarter, 17% for the second quarter, and we'll keep seeing growth as these projects come on. Thank you for your involvement with the company, and we look forward to updating you on shareholder value propositions as that becomes available.