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Williams Grew Northeast G&P Volumes Despite Producer Shut-Ins

Williams Partners LP's Northeast gathering and processing (G&P) business enjoyed higher volumes and increased revenues during the third quarter compared to a year ago -- in spite of substantial price-related producer shut-ins during the period, Williams CEO Alan Armstrong told analysts Thursday.

"Price-related shut-ins from our producers did dramatically impact 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," Armstrong said during the company's third quarter earnings conference call.

Northeast G&P includes the partnership's midstream gathering and processing business in the Marcellus and Utica shale regions, including Susquehanna Supply Hub and Ohio Valley Midstream (OVM), as well as its 69% equity investment in Laurel Mountain Midstream, and its 58.4% equity investment in Caiman Energy II. Caiman Energy II owns a 50% interest in Blue Racer Midstream.

Northeast G&P reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $87 million, compared with $68 million for third quarter 2014. The improved results were due primarily to a $25 million increase in fee-based revenues driven by higher volumes and incremental new services at OVM, as well as $11 million higher proportional EBITDA from equity investments, the company said. The gains were partially offset by $15 million in higher operating expenses associated with growth and operational repairs.

Later during the call in response to an analyst's question, Jim Scheel, senior vice president for Northeast G&P, elaborated on the producer shut-ins in the region.

"For the third quarter in what I call the dry Northeast, we had a significant amount of volumes shut in. In Bradford and Susquehanna counties; we probably had about 350 MMcf/d in Susquehanna and upwards of 400 MMcf/d in Bradford, so pretty significant for the quarter shut ins," Scheel said. "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 in 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 MMcf/d in the Utica. Those have come off. We are now flowing at full rate. In fact, this weekend we had 1 Bcf production at the Utica Supply Hub for the first time. So right now we have about 900 million shut in..."

Short-Term Pain; Long-Term Gain

Besides looking forward to the shut-in production coming online, Scheel said Williams can also look forward to producers finishing up their uncompleted wells and bringing them online. "That's true both in the northeast portion of the Marcellus as well as the wet Marcellus in the south," he said. "Those give us a great amount of potential for future volumes."

Pain now will make for better times later, especially after more takeaway infrastructure is built out in the Northeast, Armstrong said.

"The North American producers continue to amaze us and innovate and continue to deliver production at cost levels that no one thought as possible even a year ago," Armstrong said. "While this has led to a painfully oversupplied market in the short term, it continues to lead the way toward growing demand and expanding prosperous markets for natural gas and natural gas derivatives..."

Williams Partners reported adjusted EBITDA of $1.1 billion, a $193 million, or 21%, increase from third quarter 2014, driven by $204 million, or 18%, higher fee-based revenues, partially offset by $68 million in lower natural gas liquids (NGL) margins due primarily to NGL prices that remain at 10-year lows, as well as $51 million higher operating and general and administrative expenses versus third quarter 2014.

The partnership reported a third quarter net loss of $194 million compared with income of $233 million in third quarter 2014. The unfavorable change was driven by $477 million of impairments in 2015 associated with certain equity-method investments, as well as declines in NGL margins and higher operating, depreciation and interest expenses.

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