The Williams Companies, Inc.
Q3 2015 Earnings Call Transcript

Published: 29 Oct 2015

[Operator:]

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.

[John D. Porter:]

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 and 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 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 reconcile to General Accepted Accounting Principles. These reconciliation schedules appear at the back of the presentation materials. With that, I'll turn it over to Alan Armstrong.

[Alan S. Armstrong:]

Great. Thank you, John, and good morning everyone. Thanks for being on the call with this early this morning. Before we discuss our third quarter results, I'd like to provide a brief update on the transaction we announced with Energy Transfer on September 28. 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 is 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 towards 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, really showing the strength as we continue to see prices erode and some really dramatically low NGL prices in the quarter, but our strategy of continuing to invest in these big fee-based projects is 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 or market side of our business as the U.S. 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 costs levels that no one thought was possible even a year ago, and while this has led to painfully over-supplied markets in the short-term, it continues to lead the way towards growing demand and expanding prosperous markets for natural gas and natural gas derivatives. And so, over the long-term, we think we're really seeing a supply-led expansion, and I know that people are getting impatient about that, but I can assure you, as you look through our backlog of projects, it's very evident to us that that capital is going in place to pave the way for growing demand. So the current barrier to the 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, it is 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 at Williams and see it as a critical next role in really delivering the tremendous value that the North American producers have developed via their innovation and continue the learnings in developing our low-cost resources here in the U.S. So with that, let's move on to slide two. Overall, our strong third quarter results underscore the effectiveness of our strategy to connect the best natural gas supply 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 large-scale infrastructure projects required to realize the fruits of the strategy. Once again, we showed our ability to deliver substantial growth in EBITDA and DCF despite much lower commodity prices; and in fact, four segments 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 third 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 waiver for the quarter that was associated with the WPZ/WMB merger termination. So let me now drill into the drivers for this 21% improvement in EBITDA for the third quarter of 2015 to the third quarter of 2014 comparison. First of all, big congratulations to our Atlanta-Gulf team who delivered $414 million for the quarter, up 53%. Even more impressive was that 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 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, and that 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 deliver (08

[Operator:]

Thank you. Our first question comes from Brandon Blossman of Tudor, Pickering, Holt Company (sic) [Tudor, Pickering, Holt & Co.] (26

[Brandon Blossman:]

Good morning, Alan; everyone.

[Alan S. Armstrong:]

Good morning.

[Brandon Blossman:]

Let's see here. There is quite a bit. I guess just a little bit of bookkeeping; in terms of project timing in the Northeast, any incremental color on Constitution and getting that kicked off?

[Alan S. Armstrong:]

Sure. We've gotten through all the work with DEQ with New York and that was kind of our final barrier up there. We are working with the Governor's Office to understand what – the cause of delay of getting that permit out, but that is kind of the final issue that we're waiting on. And so we're working to understand that. A lot of great work going on by the teams there to get the – past the requirement for the New York DEC (27

[Brandon Blossman:]

And so still on track for that timeline?

[Alan S. Armstrong:]

Yes.

[Brandon Blossman:]

The new 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?

[Alan S. Armstrong:]

Yeah. Great question. Well, I'd tell you that, that PDH project is very, very unique from our perspective, and that it's taking advantage of very low-cost propylene that's already in the area as well as the propylene that we would make with the new PDH facility. And so we, for quite some time, wanted to see polypropylene unit and 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 particularly polypropylene, and then being railed back up into the Midwest market. And so this project takes advantage of that low-cost propane there in the basin and low-cost propylene that comes directly off of those big delayed cokers in the oil sands and then just transports it in directly into those Midwest markets and also will have access to international market out of places like Port of Vancouver. So really excited to be teamed up with the Goradia Capital Group and a huge marketer of derivative projects – derivative products around the world, and really excited to have them as a partner there. And I would tell you, the next available project to us is clearly a PDH 2 facility there and they're very interested in that and we certainly have plenty of product, as we continue to expand our upstreams oil sands operations, we've got a lot of propylene that we want to find a better home for than having to be railed into the Gulf Coast. So I would just tell you it really is a logistics play for us. We're not depending on the kind of propane basis differential that we've 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 excited PDH is a great answer up there, especially with somebody coming – 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.

[Brandon Blossman:]

Awesome. Got it. Thank you. Very interesting.

[Alan S. Armstrong:]

Thank you very much. (31

[Operator:]

Thank you. The next question comes from Christine Cho of Barclays. Please go ahead.

[Christine Cho:]

Good morning, everyone.

[Alan S. Armstrong:]

Good morning.

[Christine Cho:]

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've 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 is this more of a timing thing into 2016? Or is some of this stuff indefinitely postponed until pricing signals improve, like you've mentioned?

[Alan S. Armstrong:]

Christine, I would actually say – I'll separate 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 kind of 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 the smart pigging process and we basically have to estimate the number of repairs or anomalies that we'll 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 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 (33

[Christine Cho:]

Okay, great. And then on the heels of that, it looks like you funded all the CapEx with debt in third quarter. I'm assuming you couldn't really tap the ATM PZ (34

[Donald R. Chappel:]

Christine, this is Don. Good morning.

[Christine Cho:]

Morning.

[Donald R. Chappel:]

First, I'd 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 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'll be balancing obviously cost and risk and – with a combination of debt and equity to finance and keep WPZ at investment grade ratings.

[Christine Cho:]

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

[Donald R. Chappel:]

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'll 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.

[Christine Cho:]

Okay. Last question from 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 is a lot of wells waiting on completion. Can you quantify that behind your acreage as well?

[Alan S. Armstrong:]

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

[James E. Scheel:]

Sure. For the third quarter in the, what I'd 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'll 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. Those are – we are now flowing at full rate. In fact, this weekend we had a Bcf production at the Utica Supply Hub for the first time. So right now we have about 900 million shut-ins. As Alan indicated at the very beginning of the presentation, there's 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 as well as – I mean, the Marcellus as well as the wet Marcellus in the South. Those give us a great amount of potential for future volumes. And as we look at our rig counts, we see those holding relatively steady as we go from 2015 to 2016, probably actually seeing a – although it'll probably stay at 15, it could go up by a couple of rigs over the course of that timeframe. Does that answer your question?

[Christine Cho:]

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

[James E. Scheel:]

Thanks.

[Alan S. Armstrong:]

Thank you.

[Operator:]

Thank you. The next question comes from Jeremy Tonet of JPMorgan. Please go ahead.

[Jeremy B. Tonet:]

Good morning.

[Alan S. Armstrong:]

Good morning.

[Donald R. Chappel:]

Good morning.

[Jeremy B. Tonet:]

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, is there – do you have any visibility to that coming back online as far as, is there certain price points or other kind of regional de-bottlenecks you think that could help get that flowing, or any color there would be great?

[James E. Scheel:]

Alan, would you like me to take that one?

[Alan S. Armstrong:]

Please, Jim. Thank you.

[James E. Scheel:]

All right. Sure. Obviously, we've talked about Henry Hub pricing and the basis differential, as I think you're aware. The basis differentials from the Northeast to 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, those of you remember at Analyst Day, perhaps, there are a number of projects including Constitution, Atlantic Sunrise which we're 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've got (40

[Jeremy B. Tonet:]

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

[Alan S. Armstrong:]

Well, I would just add to that. Thank you for the question. I would just add to that, certainly, as Jim mentioned, in the near-term, we have the Leidy Southeast, that's 525 million a day. So that's pretty substantial. Because a lot of that Northeast volume is gathered by our system, we should expect to see some of that relief parlayed (42

[Jeremy B. Tonet:]

Great. Thanks for that. And then just looking at Atlantic-Gulf. It was quite a nice quarter all take (42

[Alan S. Armstrong:]

Yeah. I'll take it. I don't know if we have Rory on line, he may want to provide some more detail, but – no, it really was just a matter of these big projects really starting to mount up and it really was a matter of having a full quarter. There really wasn't any seasonal issues. In fact, volumes on Transco on a, 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 the – Transco doesn't get driven up/down (43

[Jeremy B. Tonet:]

Great. Thanks. That's it from me. Thank you.

[Operator:]

Thank you. The next question comes from Craig Shere of Tuohy Brothers. Please go ahead.

[Craig K. Shere:]

Good morning. Congratulations on a nice quarter.

[Alan S. Armstrong:]

Good morning. Thank you.

[Craig K. Shere:]

Good to be above one times coverage.

[Alan S. Armstrong:]

Yes. It is.

[Craig K. Shere:]

So on Christine's CapEx question, Alan, you referenced some cost savings in Susquehanna and at 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 cost deflation?

[Alan S. Armstrong:]

Yeah. I would say in the case of the Susquehanna Supply Hub, a couple of things

[Craig K. Shere:]

Okay, great. And where is the current state of Geismar utilization?

[Alan S. Armstrong:]

John Dearborn, you want to take that please?

[John R. Dearborn:]

Yeah. Sure. I'd be glad to, Alan. Thanks. And Craig here is where we are. You'll notice in our results we're reporting that Geismar's running at – we sold about 404 million pounds this quarter. I'll remind you that that's WPZ's share of Geismar, so Geismar actually sold more closer to – or produced closer to 450 million pounds, between 450 million pounds and 460 million pounds in this quarter. We have been running a bit of propane as a feedstock as we bring the plant back into operation. And so there's about another 18 million pounds of propylene that we've been producing there. Net-net, when you add all that up and make some adjustments and 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're 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 in next year that could help the team to further hone or find some increments. So I would say setting the expectation, we have a little bit of upside yet on volume out of Geismar, but it's running extraordinarily well here during this quarter and we're really grateful of the team and all the efforts they put into restoring the safe and reliable operations of that unit.

[Craig K. Shere:]

That's great, John. I know it's been a long road there and it's terrific to hear such a good quarter in terms of execution.

[John R. Dearborn:]

Appreciate your comments. Thank you.

[Craig K. Shere:]

Last question is the PDH project, still somewhere in the neighborhood of perhaps $1 billion investment or almost then – 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?

[Alan S. Armstrong:]

I'll go ahead and take that real quickly. As to the costs, we're not going to disclose that until we go for our FID on that. And so 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've certainly looked around the industry and seen what's going on on several of the other PDH projects and have been careful to take note of that as we continue to refine our estimates up there. So I would say that we've had kind of 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 costs there. So big investment and we'll be providing – we're not going to be providing that number just yet until we get to the FID report, at least further along. On the gap in timing for PDH 2, really good question. That's a difficult issue, because you don't want to change scope in the middle of your project. I would tell you we have done a lot to make sure that when we do put in the PDH 2 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 polypropylene side thought through, so I would just say we're making investment thinking about the future for PDH 2. And we do think the returns for PDH 2 project would be very attractive, but we're really just trying to keep our focus tightly on the scope of PDH 1 to start with. So I'd just say we're not ready to bring forth a PDH 2 decision just yet, but we are planning for the future.

[Craig K. Shere:]

Understood. Congratulations again on the quarter.

[Alan S. Armstrong:]

Thank you.

[Operator:]

Thank you. The next question comes from Darren Horowitz of Raymond James. Please go ahead.

[Darren C. Horowitz:]

Hey, guys. Good morning. Alan, just one quick question for you. I realize you're still evaluating like you said that scope of PDH 1, but as we're 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 influence at arbitrage (51

[Alan S. Armstrong:]

Yeah. Good question. I would say really the party that will be having the lion's share of that exposure obviously would be our partner who would be in the business of marketing that product, polypropylene product, and certainly that's their expertise. And I think they're really excited about the markets they think this very low-cost supply can get into. From our vantage point, we're going to be very focused on producing propylene at a low cost and into that contract that is a fee-based contract. And so that's what we're 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 them to a fee-based contract.

[Darren C. Horowitz:]

Thank you.

[Operator:]

Thank you. The next question comes from Ted Durbin of Goldman Sachs. Please go ahead.

[Ted J. Durbin:]

Thanks. I would love to ask about the Appalachian Connector project. You mentioned the fact that producers are really interested in getting their gas uptown and it seems like a good solution, but there are some competing projects that look like they're along the same lines there. So just wondering if you – what the discussions are with producers, their willingness to commit to volumes, any range of sort of CapEx or return you might expect on a project like that?

[Alan S. Armstrong:]

Yeah. I would just say we've been looking at a number of alternatives on that project. The thing that we – 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're 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 after all the other investments have been made. So that's the first piece of that. Second piece of that, I would say, is that the kind of volumes that we're seeing from the dry Utica are just continuing to impress us and some tremendous volumes up there that we think are going to – 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.

[Ted J. Durbin:]

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

[Alan S. Armstrong:]

John, you want to take that please?

[John R. Dearborn:]

Sure. Glad to do that. Great question and thanks for it, Ted. I guess 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're looking at the costs, 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 the costs to be hugely different going forward as the run rate goes, Ted. Hope that answers your question.

[Ted J. Durbin:]

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

[Alan S. Armstrong:]

Thank you, Ted.

[Operator:]

Thank you. The next question comes from Becca Followill of U.S. Capital Advisors. Please go ahead.

[Becca Followill:]

Good morning, guys.

[Alan S. Armstrong:]

Good morning, Becca.

[Becca Followill:]

(57

[Alan S. Armstrong:]

Thank you. I don't want to be too specific, but, first of all, for 2016 and 2017, as we mentioned earlier, our cash flow from the MVC has not changed, so there really 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 (57

[Becca Followill:]

And then post 2017?

[Alan S. Armstrong:]

Well 2017, that's when those MVCs ended naturally under the contract, so (58

[Becca Followill:]

Okay.

[John R. Dearborn:]

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

[Alan S. Armstrong:]

Yeah. So that really was really great trade for both of us on that. We allowed them to bring – combine those fields and allow them to put the best economics to work on their capital, but in exchange to that we both got a longer-term and better expectations for volumes and growth (58

[Becca Followill:]

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

[Alan S. Armstrong:]

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

[Becca Followill:]

Thank you.

[Alan S. Armstrong:]

Thank you.

[Operator:]

Thank you. The next question comes from Christopher Sighinolfi of Jefferies. Please go ahead.

[Christopher Paul Sighinolfi:]

Hey, Alan. How are you?

[Alan S. Armstrong:]

Good morning. How are you?

[Christopher Paul Sighinolfi:]

I'm great. Thanks for all the color this morning. A lot of it's been a hit already, but just maybe 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 could offer on that project, either costing-wise or counterparty-wise your thoughts on initial versus maybe future expansion opportunities on the side then (01

[Alan S. Armstrong:]

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

[Rory Lee Miller:]

Sure. Yeah. 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. So we've reduced the size of the project. Now, that's kind of the bad news. The good news is, some of those – 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're excited about pursuing. And kind of as you hinted out 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.

[Christopher Paul Sighinolfi:]

Okay. Thanks. Thanks for the color on that. I guess switching gears and this is just my second question. Alan, 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, it was pretty solid mostly on the pricing front this quarter. Just wondering how you're thinking about producer activities out there; potential volume movements as we move into 2016 out there?

[Alan S. Armstrong:]

Yeah. Sure. I'd just say that the producers just continue to find ways to bring in additional production out there as well with very, 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 is to just – in the current pricing environment is to keep driving our unit costs low and keep the volumes as flat as possible, is kind of our expectation. The good news about the West relative to what we're seeing in the East is that, there's 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 – and we've seen very – we've seen a very small almost insignificant amount of ice-related shut-in, just like we would in any winter or shoulder month in the West. But overall, it's a very low cost place for variable production. And so we really don't expect a whole lot of change out there. So lots of reserves, lots of known reserves, and I think if we do see a price signal producers are ready to jump on it, but we're not expecting anything dramatic out of the area. And really proud of the team for working hard to keep our cash flows as steady as they have, considering how low NGL margins have been out (01

[Christopher Paul Sighinolfi:]

Great. Thanks a lot, Alan. Thanks for your color this morning. Appreciate it.

[Operator:]

Thank you. The next question comes from Sharon Lui of Wells Fargo. Please go ahead.

[Sharon Lui:]

Hi. Good morning.

[Alan S. Armstrong:]

Good morning.

[Sharon Lui:]

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

[Alan S. Armstrong:]

Yeah. Great question. I would just say that we're 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'll be working to take advantage of that firm capacity that they have, and so feel pretty good about the prospects of that. But I also would say that the way we're structured on that, we're not obligated to go spend that money out in front of the production showing up, and so we have an ability to step into that. So we're not going to be out spending capital in front of that drilling from a risk standpoint. But we do think that's a very, very good acreage, some really impressive cost levels available to it. And so we're really excited. We've got a very good vantage point of what people's production versus cost levels are. We're very excited about that acreage.

[Sharon Lui:]

Thank you.

[Alan S. Armstrong:]

Thank you.

[Operator:]

Thank you. Our last question comes from John Edwards of Credit Suisse. Please go ahead. Bhavesh M. Lodaya - Credit Suisse Securities (USA) LLC (Broker) Hey, good morning. This is Bhavesh instead of John on. So most of my questions are answered. Just a question on Geismar. Given where ethylene prices are, 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 fee-based contracts against (01

[Alan S. Armstrong:]

John, you want to take that please?

[John R. Dearborn:]

Sure. Glad to take it and thanks for the question. Yeah. First of all, we're really pleased to be serving customers again back in Louisiana. It just so 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 – say it was July, we saw industry-high production. So I think all of that lead to perhaps a bit of an oversupply or a slightly long market in ethylene and the necessary price adjustments that occurred during the quarter. I'll note, though, that over the last weeks, two weeks notionally, we recovered some of that price. It's come back up probably on the order of about $0.05 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'll play positively is a very high turnaround season. And I think another factor that will play positively is relatively low inventories of ethylene by any public accounting. So I'm 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 coloring; that's the way we see things playing out here over the next couple of quarters. Bhavesh M. Lodaya - Credit Suisse Securities (USA) LLC (Broker) Sure. And are there any opportunities to tie in contracts, pricing-based contracts, on these?

[John R. Dearborn:]

Yeah. Thanks. Forgot to mention on that. We're always in the marketplace looking to secure the best value for our ethylene out there and we have been in conversations in past – 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 sort of contracts, all in, including fee-for-service contracts and so trying to lock in some of the margins into the future. Of course, in this dynamic price environment, everyone sits across the table with kind of rubber guns pointed at each other, and we'll see where those negotiations go over time. But we're always looking, when it would appear to be favorable to us, to lock up solid volumes and solid margins on Geismar 1. Bhavesh M. Lodaya - Credit Suisse Securities (USA) LLC (Broker) Great. Thank you. And thanks, Alan, and congrats on a great quarter.

[Alan S. Armstrong:]

Thank you very much. Appreciate that.

[Operator:]

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

[Alan S. Armstrong:]

Okay, great. Well, thank you everybody for joining us this morning. We really appreciate the interest and appreciate you 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 a strategy that we had before us, and appreciate all their attention to focus despite the many distractions that we've had. So with that, thanks again for joining us this morning and have a good day.

[Operator:]

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