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Williams Eyes Permian, Ethane Projects

With the merger of two master limited partnerships (MLP) at Williams lurching forward, and an olefins plant in Louisiana coming back online after an explosion last year, CEO Alan Armstrong provided industry analysts with some insight into the company's plans for the future -- giving credence to some rumors, but maybe not others.

During a conference call Thursday to discuss the company's 3Q2014 earnings, Armstrong declined to discuss rumors that Williams was on the verge of accepting a deal to enter the Permian Basin. But he confirmed that the company had been interested in the Permian, especially the Delaware Basin, for some time.

"We've had a lot of producing customers...interested in [having] us providing services in the area where there is not much infrastructure," Armstrong said. "We're certainly not interested in going into areas that are already well served, but there is a lot of that basin that is not well served. We've been looking at it, and we would like to enter it in a way that -- (1) is well supported from a financial perspective; and (2) that ultimately we get to a scale position that has competitive advantages.

"Provided that we can accomplish both of those tasks, then yes, we would be interested in entering the basin. But those are two pretty lofty goals in terms of making sure that the cash flows are well supported and that we have a clear line of sight on gaining scale and competitive advantage the way we usually enjoy in a basin."

Three days after Sasol Ltd. announced plans to build an $8.1 billion ethane cracker and derivatives complex in Louisiana (see Daily GPIOct. 27), Armstrong said the market "seems to be awash in ethane" but that investments into the infrastructure to recover it all haven't materialized yet.

"Obviously, that's a business that we like and one that we continue to have an eye toward -- how we play a critical role in recovering and distributing all of that ethane," Armstrong said. "People are unwilling to invest in the infrastructure that it takes to get it recovered and into those markets. What we are seeing on the gas side now -- where the demand is on the verge of really starting to grow pretty rapidly -- the same thing will happen on the ethane side, but it is going to take quite a bit of infrastructure. We are certainly working hard to plan that."

Armstrong cited the company's Bayou Ethane Pipeline project, currently in the commissioning stage (see Daily GPIJan. 2). The pipeline would deliver ethane to petrochemical plants and storage facilities along a route from Orange, TX, to Geismar, LA.

Last Sunday, Williams increased the incentives for investors in Williams Partners LP and Access Midstream Partners LP -- two MLPs controlled by Williams that are headed for a merger (see Daily GPIOct. 27). Armstrong said the merger would create $50 million in savings, but said additional commercial opportunities heading into 2015 were hard to quantify.

"We really haven't put a number to the commercial side, and some of it will be pretty hard to characterize," Armstrong said. "For instance, if we're able to pick up volumes and develop a project like Atlantic Connector based on some of those synergies, that's a longer-term value proposition but nevertheless valuable.

"It's such a fluid situation in terms of customer responses and so forth, that it's going to be pretty hard for us to quantify. But we're certainly excited by what we're seeing."

According to reports, two weeks ago Williams was among the bidders for Entrada Midstream Inc., a natural gas pipeline unit owned by QEP Resources Inc. Armstrong reiterated that the company was "always interested" in acquisitions that were strategic to Williams. That said, he didn't confirm or deny the QEP rumors.

"We're going to be very selective, but given the large footprint that we have there are a number of projects that would add a lot of synergies," Armstrong said. "I would even suggest something like QEP. It's not surprising to me that somebody assumed we would be the buyer. I would tell you we would be a pretty good buyer for those assets, just given the synergies that we have in the area."

On Wednesday, Williams Partners LP said it had repaired and expanded its olefins plant at Geismar and that it expects to begin manufacturing ethylene for sale in November. An explosion and fire at the plant in June 2013 killed one person and injured dozens of others (see Daily GPIOct. 29June 14, 2013).

Williams’ 3Q 2014 Net Income was $217 Million ($0.07/share) down from $284 million or $0.52/share in the year-ago period. The company said the decrease was primarily due to the ongoing effects of the June 13, 2013 Geismar incident, where the 2013 period included the receipt of $50 million of related insurance recoveries. Additionally, the 2014 period was unfavorably affected by $28 million lower natural gas liquids margins and $24 million in higher net interest expense.

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