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Williams' Armstrong: Northeast Basis Will Collapse in Time

Williams/Williams Partners LP process to sell or find a tolling agreement for its Geismar, LA, olefins plant is in full swing. Meanwhile, adjustments have been made to the schedule for the Atlantic Sunrise project to accommodate a regulatory delay, CEO Alan Armstrong told analysts during a conference call Monday.

During the call, Armstrong was asked about the outlook for basis differentials in the Northeast and when they might narrow, given the number of pipeline capacity projects slated to come online in the months ahead, both by Williams and other companies.

"This isn't the first time the industry has seen something like this," Armstrong said. "We saw this in the Rockies back when we had a $2.75 basis differential, and it worked itself out over time. People started to think it was never going to come over that barrier, and today we sit there with basis differentials of around 5% and often less in the Rockies today. So I think we'll eventually get there, but it is a complex question given the number of projects that are coming on and the interconnectivity of the pipelines to be able to address that."

Armstrong cited the upcoming completion of an expansion of the Rockies Express Pipeline to move gas westward (see Daily GPISept. 14) as one chip to whittle down the differential and let more gas out of the region.

"And then I think Atlantic Sunrise will be the next big adder to that area as we unload all that gas trapped up in Zone 6 on Transco with those projects coming online," Armstrong said. "I do think that Atlantic Sunrise coming on will improve the Dominion South basis...I think it's going to take time for all of these projects to come on, but I do think that we will see that basis collapse pretty substantially as we get into '18."

The schedule for Atlantic Sunrise was recently pushed back following a regulatory delay at the Federal Energy Regulatory Commission (see Daily GPIOct. 28). Partial service on the project is now expected to begin in late 2017. Williams had previously planned to begin full operation of Atlantic Sunrise -- a 1.7 Bcf/d expansion of its Transcontinental Gas Pipe Line Co. LLC (Transco) system -- by late 2017. Full service is now slated for mid-2018.

On Monday Armstrong said that even a two-month delay can wreak havoc with a project timeline. While 96% of the survey work for Atlantic Sunrise has been completed, he said, the remaining work must be completed before there is snow on the ground, which doesn't look likely. "That really is what's driving some of that schedule push back."

Armstrong said regulatory agencies are being "very cautious" about the project given landowner and environmentalist opposition to new infrastructure in the region. He praised the cautious approach and noted that Pennsylvania's governor remains a fan of Atlantic Sunrise.

Something that is on schedule is the process to sell or find a tolling agreement for the Williams Geismar olefins plant in Louisiana. In September the company said it was considering these options for the plant (see Daily GPISept. 7).

If it's to be a sale, Williams wants a counterparty that can close quickly, Armstrong said. If it's to be a tolling arrangement, the counterparty needs to have strong enough credit to back up its obligations, he said. "We remain open to both, but we'll have to see what the best value is there," he said. A decision is expected some time toward the end of the first quarter.

Williams Partners revised its 2017 growth capital guidance due primarily to the shift in Transco and related Northeast gathering and processing growth spending caused by the revised Atlantic Sunrise in-service date, as well as new projects and other changes, the company said. Total 2017 growth capital and investment expenditures are expected to be between $2.1 billion and $2.8 billion (reduced from $3.1 billion previously), including total 2017 growth capital for Transco, which is expected to be between $1.4 billion and $1.9 billion.

Williams Partners reported third quarter net income of $326 million, compared to a $194 million net loss from third-quarter of 2015. The improvement was driven by the absence of $461 million of impairments recognized in 2015. It also reflected higher olefins margins at Geismar, lower expenses along with higher service revenues associated with expansion projects, partially offset by a $32 million additional loss associated with the completion of the sale of Canadian operations and expensed project development costs.

Third-quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $1.189 billion, an $89 million increase over third-quarter 2015, due primarily to $37 million higher fee-based revenues, $33 million higher olefins margins and $21 million lower expenses.

Third quarter distributable cash flow was $795 million, compared with $754 million for the same period last year.

Williams reported third quarter net income of $61 million, a $101 million increase from the year-ago quarter. Third quarter adjusted EBITDA was $1.192 billion, an $89 million increase over third-quarter 2015.

"With adjusted EBITDA growth across all five of the partnership's operating areas and increased distributable cash flow achieved by Williams Partners, our strong third-quarter results highlighted once again the effectiveness of our strategy and how well-positioned we are to capture natural gas demand growth now and in the future," Armstrong said.

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