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'Politics' Drove Constitution Permit Denial, Says Williams CEO

Despite an infrastructure permitting setback in New York state and a stalled (at least for now) merger with another major midstream player, Williams and Williams Partners LP reported stronger adjusted earnings for the first quarter.

During a conference call to discuss the first quarter, Williams CEO Alan Armstrong did not mince words about the company's disappointment in the recent denial of a water quality permit for the Constitution Pipeline project, of which Williams is a partner (see Daily GPIApril 25).

"There's been quite a lot of media coverage around the state of New York's denial of our 401 water quality permit with Constitution Pipeline," Armstrong told analysts. "We obviously don't agree with the decision and believe there was a significant amount of politics involved that went into that decision. Some of the resulting media coverage certainly echoes that sentiment."

He emphasized the importance of the project to upstate New York as well as the New England States, with both regions seeking to wean themselves from coal-fired and nuclear power.

"We work hard to do things right by the environment, and we work hard to cooperate with regulators and landowners," Armstrong said. "And so we're always disappointed when those efforts where we really do try to do the right thing seem to be ignored. The Constitution partners are assessing the path forward, and we're committed to building this critical piece of infrastructure."

Williams has work to do elsewhere, too, on the Transcontinental Gas Pipe Line Co. LLC (Transco), for instance.

"Everyone familiar with natural gas knows that Transco has always delivered gas from the south to the north, but to really unlock the supplies in the Northeast, its flow will have to be reversed in many areas," Armstrong said. "Reversing this flow is exactly what we did in 2015 with the Leidy Southeast expansion [see Daily GPIOct. 16, 2015] and particularly at our Transco Station 180. It's exactly what we're doing today and it's exactly what our growth projects will continue to exploit over the next two years."

The proposed merger of Williams with Energy Transfer Equity -- which is currently stalled by concerns over the potential tax treatment of an aspect of the deal (see Daily GPIMay 5) -- was not discussed by management during the earnings call.

Williams reported first quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.06 billion, a $138 million, or 15%, increase from first quarter 2015, driven primarily by Williams Partners' adjusted EBITDA, which increased $143 million, or 16%, for the quarter to $1.06 billion. That was driven by $60 million in higher olefins margins from a full quarter of Geismar, LA, plant production and $63 million in fee-based revenue growth.

Williams first quarter adjusted income was $26 million (3 cents/share) compared with $122 million (16 cents/share) in first quarter of 2015, primarily due to higher interest expense and a lower allocation of net income to Williams associated with an incentive distribution rights waiver from the termination of the Williams Partners merger agreement (see Daily GPISept. 28, 2015).

The company reported a net loss of $65 million (minus 9 cents/share), compared with net income of $70 million (9 cents/share), for first quarter 2015.

"Our focus on fee-based revenues has allowed us to produce strong cash flow growth despite a 16-year low in NGL [natural gas liquids] prices," Armstrong said. "For the balance of 2016, we expect additional cash flow from recently completed expansions and new projects coming into service in the second and third quarters. Our fully contracted natural gas transmission business coming on in 2017 and 2018 will drive growth in the supply basins we serve."

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