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Williams’ Shift to Rich Gas Areas to Drive Volume Growth through 2019

The Williams management team sees increased producer activity in wetter natural gas plays like the Eagle Ford Shale of Texas and the Wamsutter field and portions of the Powder River Basin in Wyoming driving volume growth for the remainder of the year and into 2019, and CEO Alan Armstrong is hinting at several projects set for announcement later this month.

Specific to Williams Partners LP’s (WPZ) west midstream business segment, which includes assets from Wyoming to Kansas and South Texas, gathered volumes were higher in nine of 10 franchises during the first quarter 2018 versus the first quarter 2017. Only the Barnett Shale saw a decline in volumes, about 5% sequentially, Armstrong said on a call Thursday to discuss quarterly earnings.

With rig activity in the Haynesville Shale ramping up at the end of 2017, Armstrong said he expected “pretty significant” production coming from that area in 2018, as well as from the Eagle Ford as more rigs are moving over to oil and rich gas areas.

“No one is as well positioned as Williams to capture the ongoing demand growth of natural gas in the U.S.,” he said, noting that Williams plans to provide more details at the annual analyst day on May 17.

WPZ also reported higher volumes in its northeast segment, particularly on the partnership’s Susquehanna Supply Hub and Ohio River Supply Hub. Armstrong said continued growth was expected there, with 20 wells expected to come online in the Marcellus Shale during the second quarter, compared to none in the first. That new production would work to fill up Williams unit Transcontinental Gas Pipe Line Co.’s (Transco) Atlantic Sunrise project, which is still on track to begin operations by mid-year.

Ninety percent of stringing and welding on the pipeline is complete despite some “very difficult conditions” in the region during the winter, he said. A large number of tie-ins have already begun, and hydrostatic testing has been initiated as well. Despite the harsh winter conditions, Armstrong said the team has been making great progress in putting the 1.7 million Dth/d project in service on time, “give or take a few weeks on either side.”

In addition, the company’s Fort Beeler processing complex in West Virginia is running at capacity, and work continues on the expansion of its Oak Grove facility in Marshall County, WY. The second train at the facility is currently being installed with in-service expected next year and “train 3 likely after that,” said the CEO.

Last month, Williams filed an application with FERC seeking authorization for its Southeastern Trail expansion project, which would open up more capacity to meet rising natural gas demand in Virginia, North Carolina, South Carolina and Georgia. The project would create 296,375 Dth/d of additional firm transportation capacity on Transco, according to the filing with the Federal Energy Regulatory Commission [CP18-186].

Precedent agreements with utility and local distribution companies have been executed in all four states, with plans to have the expansion done in time for the 2020-2021 winter heating season.

Williams reported first quarter 2018 net income of $152 million (18 cents/share), verus $373 million (45 cents) a year earlier. Cash flow from operations was $694 million, down from $727 million. The unfavorable change was driven primarily by the absence of a $269 million gain in 1Q2017 associated with a transaction involving certain joint venture interests in the Permian Basin and Marcellus Shale. Commodity margins were $59 million lower primarily because of the absence of margins from the Geismar olefins facility, which was sold last July.

WPZ reported 1Q2018 net income of $360 million (37 cents/share), down from $634 million (68 cents) year/year. The partnership generated $784 million in distributable cash flow during the quarter, an increase from $752 million in 1Q2017.

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