The Williams Companies, Inc. (WMB) Q3 2008 Earnings Report, Transcript and Summary

Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Williams Third Quarter 2008 Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Campbell, you may begin your conference.

Thank you, Brandy, and good morning every body and welcome to the Williams third quarter 2008 earnings call. As always, we thank you for your interest in the company. After my brief comments, Steve Malcolm, the CEO will go through some thoughts, and then we'll have our CFO, Don Chappel briefly talk about our solid third quarter results. Ralph Hill will speak to E&P results and guidance and then Alan Armstrong will review Midstream business. Phil Wright is here with us today to take any questions about the pipeline business. After Alan's remarks, Don will review our thoughts on commodity prices and how they affect our guidance. Steve will then make a few brief closing remarks before we take your questions. I realize there is a lot of calls this morning and that you all have to monitor so we'll try to be brief. Please note that on our website, williams.com, you'll find the slides from this morning. Additionally, there is the appendix that contains all the data we typically provide. The third quarter earnings press release and all the coming schedules and the third quarter 10-Q are also available on the website. This morning we also announced that we're evaluating a variety of structural changes to enhance shareholder value. That press release is also available on the website. Slide two and three, titled forward-looking statements disclose various risk factors and uncertainties related to the future operations and expectations. Actual results of course will vary from current expectorations due to the factors disclosed. Please review that information. Slide four, Oil and Gas Reserves Disclaimer is also important and we urge you to read that slide as well. Also included in the material are various non-GAAP numbers that have been reconciled back to generally accepted accounting principles. Those schedules are available and are integral to the presentation. So, with that, I will turn it over to Steve.

Thank you, Travis. Welcome to our third quarter earnings call and thank you for your participation in the call and interest in our company. Let's start by looking at slide six and some of the highlights. Williams achieved another quarter of strong earnings growth. Net income is up from a $198 million in third quarter of '07 to $366 million in third quarter '08. Year-to-date net income is up from $765 million in '07 to $1.3 billion in '08. As well, recurring adjusted income per share climbs 46% for the quarter from $0.39 to $0.57 and 60% year-to-date from $1.14 to $1.82. Natural gas production increases 18% third quarter '07 versus third quarter '08 from 974 a day to 1146 a day and that production growth was really led by spectacular 37% growth that we saw on the Powder River. Encouraging initial results in the Paradox basin and Ralph Hill will describe that in more detail in a few minutes. And then the last point, the effect of two Hurricanes and other one-time unusual items certainly impacted our third quarter results. Looking at slide seven, obviously a strong balance sheet and strong liquidity is critically important in today's market and I think this slide summarizes our position. Total liquidity of more than $3.5 billion as of October 31st, we have over $1 billion of unrestricted cash and cash equivalents, we currently have in placed credit facilities of over $2.6 billion of which two-four is available. Our primary facility doesn't expire until 2012. The total liquidity number does not include the marginal facility that we can use for E&P hedges. And we also have excess capacity in the form of synthetic letters of credit that will expire in 2009 and 2010. Now please recall that these were put in place when we have the power business and are not needed in a current structure. We will not have significant debt retirements until 2011. And so unquestionably we have a very strong liquidity position from which to fund our growth and in addition to liquidity. I have just described in some detail, we continued generate robust cash flow from operations. We have as well substantial flexibility in our E&P program which allows us to reduce near term capital spending by about $1 business in '09 and '10. So, I think we are very well placed to react appropriately depending on where commodity prices head. We can ramp up quickly take advantage if the prices move up and we think they are going to stay there or we can cut another significant amount of capital if commodity prices fall lower than our forecast. Nevertheless, on slide eight, in recognition of the market, we are scaling back our capital spending forecast that may not be obvious. Since, our mid-point remains at $2.9 billion. But, we have in fact sidelined about $350 million of projects that we had previously talked about as potential growth opportunities. You'll see the E&P is projected '09 spending is about $700 million below '08 levels. And yet we're maintaining prior guidance on production growth of somewhere in the 8% to 10% range. Those numbers are driven on assumptions around lower rig utilization partially offset by higher costs and we expect the sharp cost increases that we experienced in '08 to diminish somewhat in '09. In Midstream and Gas pipes, we're maintaining spending on committed progress and differing some others. Then, so the outlook, now looking at slide nine, the outlook for the remainder of '08 and full year '09 obviously reflects the environment that we're faced with. The financial crisis, the recession have driven energy prices lower and the obvious effect is reduced projections for cash flow and earnings. The commodity prices, you look at '08 versus '09 the midpoint for crude '08 is about $105 a barrel and '09 midpoint is $30 lower at about $75 a barrel. And as well we're essentially bringing down Henry Hub natural gas by $2 an Mcf. And, so you can see how those commodity prices change our expected recurring adjusted earnings per share in the mid-points are shown on this slide and Don will go through that in more detail. Looking at the next slide, we have announced today that our management Board are valuating a variety structural changes in the company, as a means to further enhance shareholder value and among those potential changes is separation of one or more of our business units. I think you've seen Williams on many occasions during our long history successfully reshape and reinvent the company, in ways that create the most value. And in the last few years, we pulled a variety of levers to accelerate value creation and I'm speaking here about the formation of two publicly traded MLP's expanding one of those WPZ, through the contribution of additional high quality assets. We divested our power business and completed $1 billion stock repurchase program. We've also taken actions to strengthen the company's credit profile and as a result we've earned an investment grade credit rating. Our capital position is sound and our growth opportunities are abundant. As you well know, we have embraced the integrated model and I think that we performed very well in three years ending 2007. We delivered a 128% total shareholder return. We've talked to you about the merits of that integrated model. We've talked about the fact that stable and steady cash flows from gas pipes formed the foundation of our credit. Gas pipes close of cash for investment in higher returned projects. We've talked about midstream and as being a wonderful internal hedge to our E&P operations. And we've talked how the integrated model creates real and significant growth opportunities. And you'll hear about another of host today. And so, we entered 2008 with great optimism, we had just sold Power, and moved into a very strong commodity price environment and began to under perform many of pure plays. A lot of people who kept saying, what's the catalyst around Williams and of course I was thought that our continued strong performance... strong financial performance should be enough, then we moved into a down commodity market as we've seen here most recently, I thought that there would perhaps be some gravitation towards safety and safety that Williams offer by virtue of its integrated model, we have seen that occur. And so, we believe that we can do more to deliver value to our shareholders in the future and the evaluation that we are announcing today is the next step in on our ongoing strategic process. With any changes in company's structure, we intend to maintain our strong credit profile. I can't stress that enough, while we worked hard to earn this profile, because it has the advantage of reducing risks, increasing our flexibility to successfully compete and seize value creating opportunities and I think it's critical given today's challenging market conditions. As part of this evaluation, we will consider macro economic environment, the credit markets, energy prices among other things. But we believe that it is prudent to begin the evaluation now because these factors can be much different by next year. And so we want to be ready to act when markets improve. So, as we are in the evaluation stage, it would be premature to get into further details at this point. But we do expect to announce a specific direction in the first quarter of next year and look forward to updating you then. And I know that you're going to have questions and we will try to be as responsive as we can. But I hope you understand that we probably can't be more specific than what it is in the release. And so most of our answers to your questions will likely be, I don't know or I don't want to speculate or it's too early to say. So with that, I will turn it over to Don.

Thanks, Steve. Let's turn to slide number 12 please. Financial results, I think Steve had the highlights here. Again, recurring income from continuing ops after mark-to-market adjustments of $0.57, up from $0.39 or a 46% increase and on a year-to-date basis, $1.82, up 60%. Now let's turn to slide 13, there's a 50,000 for view and Ralph here will talk about E&P. Alan Armstrong will talk about Midstream results. And Gas Pipelines are steady, so we won't have Phil speak to those resolves, but as you can see focusing on the recurring column, E&P's results are up sharply at $379 million versus $169 million in the prior year, that's an increase of 124%. Midstream is off somewhat, on lower NGO volumes and sales volumes and Alan will speak to that. And as I mentioned Gas Pipelines is steady. If we go down to the last line in the schedule, you see our gas marketing services, which provides services to E&P and Midstream as well as manage our legacy positions in our transportation and storage. We have a $45 million after mark-to-market loss there. And factors in that are lower cost of market adjustment, and our gas storage inventory totaling $24 million and you can see that in the foot note, as well as our legacy loss related to some legacy positions totaling $10 million. So, again, that was largely related to lower cost of market adjustments on our natural gas inventory. And most of the inventory has been sold forward at a profit. And we'll see that profit on that in the first quarter of 2009. Again, at the bottom of the schedule in the bold type, the total segment profit after mark-to-market effects $743 million, up 23% from the prior year. Turning to page number 14, same schedule on a year-to-date basis, I won't spend much time on that other than to focus on the segment profit after mark-to-market total at $2.417 billion, up 40% from the prior year. And with that, I'm going to turn it to Ralph.

Thank you, Don. I am pleased to be here today and share a great quarter with you for our third quarter, and also demonstrate E&P's ability to participate with Williams in helping our flex our capital spending, maintaining capital discipline. And I think the key to that is, while we do this, we will be able to maintain our long... portfolio's long-term value. Looking at slight 16, quarter-to-quarter highlights, third quarter '08, third quarter '07, we had 18% volume growth, our recurring segment profit was up 124%, that was obviously a function of that volume and the third bullet net domestic realized average pricing increase of 52%. Year-to-date, we're at 20% volume growth, 105% increase in recurring segment profit growth and our domestic price is at 42% 42% year-to-date versus last year this time. On slide 17, again looking at third quarter '08 by itself or segment properties up 124% as shown graphically here by the bars, productions up 18% and stress once to again then in our portfolio, transportation portfolio and hedging program as this inflated EMP from the revenue, revenues from the Rockies basis blow out. Slide 18; look in each of areas Piceance Valley was up 14%, the Highlands was up 44%. As Steve mentioned the Powder continues have an incredible year at 37% production growth Forth Worth as we continue to ramp up at 41% and San Juan continues to actually improve in a very mature basin. The volumes reported on this slide show basically about 1% sequential quarter decrease, and that's also in our management discussion analysis. Slightly down from 1159 second quarter to 1146. We estimate, we had at least 49 million a day as to picked by the hatch part of this slide there was shut down due to pipeline curtailments, Hurricane Ike, scheduled non-schedule gathering, maintenance facilities, imbalances, etcetera. So, if you had that back in we actually had a sequential quarter increase of about 3% from what looks like a 1% decline. So none of those... what we have term one time advance happen we really would be up about 3% sequentially. So, I just want to point that out on slide 18. On slide 19, as Steve mentioned and as Bill Berry have reported yesterday we've had a encouraging results in the Paradox Basin where we currently hold about 220,000 gross acres and 110,000 net acres. In 2007, we drilled three vertical wells as you all know we did a lot of extensive testing and coring and we had encouraging results there. We have now so for in 2008 drilled two horizontal wells in our initial full rates are really encouraging. The first on four is our test well which we call the Koski, which we have a 45% interest in, obviously, Bill Berry has a 55% interest in. As the natural gas discovery in the Gothic Shale, which I talked about a little bit before, it pulled an average of 4.5 million a day for approximately 17 days and yielded a 20 barrels of condensate are during the final 10 days of the 17 day test, sorry about that. The final well, actually produced as high as 5.7 million a day. We are currently shut down with sales line. Second one is well is on a where we call the Neely. We could successfully completed in eight stage fracture stimulation line in a matter of about 3,655 feet out. Early in the flow back process it flowed over 3 million a day over the final 3 days of the 7 day test. So, we are very encouraged with each of those. We've also drilled another vertical well nine miles north of the Neely, and we're testing that for quarrying to make sure we understand this Shale. And there we have spread our third horizontal is not a well which is offset to the Koski well. So, going forward, we're planning was therefore obviously the delay at it is still to begin working with our midstream partner here Williams have with their Armstrong's group to set that up to gather this gas and able ultimately this gas down to San Juan basin. As you see in 2009 we're drilling up to a seven horizontal wells. We obviously continue to plan the conduct extensive production testing and also constructed for small processing plant to begin to get this gas which is pretty rich gas about 1200 Btu content. So, very encouraging results from the Paradox. On slide 20, our guidance. We in 2008 briefly, the 2008 profit guidance change is primarily is actually price driven and as we look at the capital spending, it is up from where we were last time, as you mentioned last time and also when I talked to you at our New York conference. We did say we were seeing cost increases as the year began and those cost increases added about a $100 million. So the difference there, our drilling activity as we continue to have additional efficiencies and new acquisitions in the Piceance Island and we'll also say new acquisitions in the Barnett. We added about another $150 million of capital spending there and about $75 million for land and exploration activity that we're in some of the new areas ultimately, we came about to our current range of 2350 to 2450. Looking to 2009, again the segment profit and DD&A the change there is oil price driven primarily 90% of that amount is price driven and looking the capital expenditures lets turn to slide 21. Capital analysis where we are not previously '09 guide point on the far left side of this and let me walk you through this slide. Our production mid-points was11% growth, we had intended to as we moved into 2009 add a rig in the highlands as you can see at two rigs in the Fort Worth. We have land and other opportunities we are doing well efficiencies just meaning we continue better, our team does on a are spread-to-spread ties between wells, when a number of new explorations opportunities we're looking into and obviously that cost increase that we have seen so far this year we've seen so far this year, we've had into our budget to it more like $2.3 billion. Production growth was going to be in about 14% to 17%. As we work through the current financial environment that we are all in, we are in the process of and it doesn't happen immediately, but over the course of the next several months and next year. We will be dropping six rigs in the Piceance as you can see that brings us down by $240 million. Our exploration activity will not be as robust as we planned, Piceance facilities go along with some of the rigs we're dropping, you'll see that drops down. So, always to showing our capital discipline, I think I'd like also to stress is that we do preserve all of our value here, even though we are going to have less activity. We believe we will continue to see some cost savings. We've seen some start to head us, and that's in there for $75 million land, Powder River, we'll drill 100 less wells and in the Powder River, we'll drill less wells in the San Juan Basin. And we'll drop two rigs in the Fort Worth. So that drops is really to occur in '09 guidance midpoint about $1.7 billion. Our production still should be 8% to 10% range. It could be as high as 10% range, but we are putting a... at the 10% level, we were putting the range up there right now as we continue to work through the overall final impact as we drop some of the rigs and show the capital discipline that we are able to employ. Next slide please; which I believe is slide 22. This slide you've seen before, answers the time, I'll just basically stress the third... the second bullet there. All right, 16% of our gas is priced in the Rockies. We also have Midstream consumption that offset the number of that, so you see we do have the natural hedge in there. So obviously, showing 16% is really what we do E&P only, when you add Midstream side, it really puts us very balanced. If not actually, slightly short. And our 2009 Rockies exposure is expected to be very similar to 2008 than that prior, what we've seen so far is 2008 has been 14% to 16%. Final slide, I will just take the top bullet at the final slide. Basically most of our portfolio is held by production. So, we can't and we have decreased our activity which provides capital discipline. We also while doing this, we'll preserve the long-term value growth for this portfolio for our future... for our future growth. And we also are very encouraged as our partner was yesterday for some of the new results in the Paradox Basin. So, now over to Alan. Alan Armstrong - President, Midstream Gathering & Processing: Great. Thanks, Ralph. Midstream's recurring profit for third quarter of '08 was $52 million lower than our third quarter of '07. Unique circumstances contributed this result and I'll go through the cause of this. First, as a result of delayed start of Overland Pass Pipeline capacity allocations targeted at Williams barrels on the similar NGL pipeline, forced our western plants in the Overland interjection. This caused about 41% lower Overland's gallons that we had in third quarter of '07. Of course the higher average per unit margins that you see in the quarter were also driven by this lower Overland content in our mix barrel, but of course the Overland is the lower priced portion of that barrel. And even largely impact came from hurricanes on the Gulf Coast, which reduced not only Gulf NGL production, but also our NGL sales in the West. With hurricane disruptions at the month value fractionators resulted in a build up of extra inventory from our western plants. This production couldn't be sold in the third quarter of '08 and will show up as incremental revenues in the following quarters as the inventory build up is fractionated and sold. If Overland Pass Pipeline, had been operational when expected, we would not face this allocation and the related Overland interjection. So, we certainly saw a tightness in capacities coming on the NGL pipelines out there. And that was certainly what prompted us to initiate the Overland Pass Pipeline project, and unfortunately, that coming in a little bit late certainty impacted our volumes for the quarter. Also contributing to our lower third quarter segment profit as compared to a third quarter last year was about $29 million lower margins in our olefins business unit. Our guidance mid-points sustained damaged from Hurricane Gustav which was the first hurricane in early September and this resulted in about there weeks of downtime. And additionally, we built up ethane inventory during the hurricane period that we had to right down at the end of the quarter. As ethane prices declined and we weren't able to consume that and convert it into ethylene. Higher operating cost in midstream were a smaller impact and that was driven by $8 million of hurricane related repair cost and $7 million of higher depreciation expenses. It is worth noting in spite of the hurricane disruption our Gulf Coast course fee revenues and primarily our deepwater business were slightly higher in third quarter of 2008 then in third quarter 2007 and I'll remind you the third quarter of 2007 was not impacted by hurricane. The stronger fee-base volumes were driven by additional production being tightened to the East breaks deepwater system with some new wells coming on there and earlier in the year and also the new backs light volumes that are flowing into our Devil's Tower infrastructure is not contributing in large ways to our fee-based revenues. Overall, our fee-based revenues grew by $16 million from third quarter of '07 to third quarter of '08 and even more impressive $39 million year-to-date in '08 verses '07. So, our goal of continuing to grow more fee-based business continues to produce both even in light of some of the setbacks we saw in this third quarter. Moving on to slide 26 here, here we are answer the question, what would the quarter have produced without the delay in Overland Pass and the hurricanes. And, this slide on 26 shows the impact of allocations, hurricanes and hedges. Now, this slide only speaks to the impact associated with our domestic NGL business. So, this is not captured anything we saw in the olefins business here. But, first is a depiction of the gallons impacted by these events, so starting on the left side of this graph. You can see that the estimated normal equity NGL gallons that we likely would have sold during the quarter as being the bar on the far left there. And, that would have been roughly 360 million gallons. And, next we subtract the estimated volumes that were lost to the allocations on the similar system and that was about 60 million gallons. And then this adjustment is followed by subtracting the hurricane related gallons and first is the inventory build there and of course again this is product that we would have sold in the quarter except for the month though the fractionators is being out of service post the hurricane and so that is sitting as raw make inventory in Mount Bellevue and hopefully we will be getting that fraction sold in the following quarters here. And then finally the damage from our Gulf Coast facility, so these are direct Gulf coast related NGL reductions that they you see there so and that's about 60 million gallons for inventory build and is about 50 million gallons from the damages there directly. Next moving over to the impact on the NGL margins; two things effectively netting each other out here, first of all as I mentioned earlier a heavier product mix this was because of the lack of Ethane that is in our mix actually we had of course heavier products and those heavier products and more valuable which would have driven our number up. And then that was offset though by the hedges that we put in place at the first of 2008 and that drove the number down by about $0.07 and so that collar impact for the quarter was $0.07 against all of our barrels produced but if you took that against just the ones that we had hedged it's about $19 million of impact or flattening that we saw in the quarter and most of that was in July and August, our hedge was pretty close to neutral in September as prices lower. So, overall the impact was estimated about $40million in NGL margin and $90million equity gallons for the third quarter of which approximately 16 million gallons should pull back to us. Moving on to slide 27, we are pleased that our third quarter segment profit benefited from an increase in fee-based business compared to year-to-date 2007. Our fee-based revenues were up over prior year for the third consecutive quarter despite hurricane impact for our fee-based business. And other than the significant negative impact from the two events we've discussed, we had a terrific quarter, and are continuing to build to another great year for Midstream. Overall, we estimate the two hurricanes alone damaged our quarter by just over $50 million and the curtailed that production at West Coast us about $25 million. You can see our estimated impact depicted in the hatch bar there which is roughly 70 low of the $70 million there in that hatch bar, just try to get to something more normal borrowing of the incidents. We are pleased to report that our new Western projects, the Willow Creek plant in the Piceance, and the one setter [ph] plant expansion both to continue on schedule, and very excited about the way those projects are coming together and the growth that that will provided us in '09 and '10. Now that Overland Pass section from one setter [ph] to bush is up and running. Our western plants will be in the position to avail to move product out of the West, and in the market areas for sale. So, there's allocation problem, and we have... and even the hurricane impact those, issues are mitigated heavily going forward. Overland Pass will resolve in significant lower transportation and fractionation expenses for us, and ample capacity for our new production coming out on the Piceance and one warm setter area in 2010. In addition, we should not see the same hurricane effects that we saw as we'll have the capability of fractionating product at Conway and Bush ton in the future. This increased reliability for E&P customers as well makes our plants even more attractive in the future. So in short, Overland Pass is a great... is a great addition to our offering of services to our customers. And we're looking forward to the new and fruitful relationship with one and Overland Pass in years to come. There are also good things happen in the deepwater three new tiebacks to floating production systems that fee discovery were recently announced. And these should boost our discovery volumes in the future. In addition, our new deepwater gas and oil pipelines serving Chevron's Blind Faith platform we're commissioned amid some very difficult sea conditions in the third quarter. We are now excited to watch the Chevron's team brings the new Blind Faith filled into production and we are obviously, anxiously waiting for that. Moving on to the next slide here talking about our '08, '09 guidance, we are lowering our '08 and '09 recurring some of the profit guidance. This reflects the impact of the allocation issues and the hurricanes we saw in the third quarter and till much lesser degree softening margins in '08. But certainly in '09, we are predicting much lower margins and that is the major impact for our '09 business. In response to this, reduced profitability we're cutting back our capital spending by about $100 million over this guidance period we've lowered our 2008 capital spending by $200 million and we've raised our '09 by $100 million this change is in response to timing and spending on some projects that got moved from '08 and to '09 and the cancellation the deferral of some projects in '09. A small portion of the lower 2009 guidance in profit is attributable to these lower CapEx. Also in response to lower core marketing prices, we've reduced our forecast to domestic NGL margin guidance by $100 million in 2008 and $200 million in 2009. Our 2008 NGL margin guidance is also affected by the Ethane rejection that incurred in the third quarter due to Overland Pass starting up approximately three weeks later than we had planned. And these reductions in '08 and '09 translate into lower NGL margin guidance mandate on a per gallon basis as well. It's important to note that although we're lowering our segment profit guidance to an average $1 billion per year through this period it still represents a tremendous return and free cash flows from this business and that's an approximately $4 billion of net assets. Additionally, we remain very excited about the number of large scale projects that will be placed at the service during 2009 and 2010 of course that includes Willow Creek-1, TXP 4 at warm setter [ph] and are very large Preditto North A project in the Western deepwater Gulf in Mexico. And with that, I'll turn over to Phil Wright. Sorry, Don. Sorry about that.

Thanks, Alan. Just turn to slide 30, just this is a summary of our new price assumptions embedded in our forecasts and certainly 2008 is down somewhat as a result of the economic conditions and lower prices. And we've seen big moves in 2009, I would point out that the 2009 assumptions that we're using the midpoints or are somewhat below the current strip prices that were we saw as it close yesterday, yesterday we saw Rockies close at $543 near the top end of our range we saw San Juan in Mid-Continent at 649 again closer to the top end of our range Henry Hub Gas for 2009 its 769 again closer to the top end of our range and crude oil prices WTI crude at 75,47 just above the mid point. So, big moves in prices and we provided this comparison to the prior guidance and the ranges for your reference. But again I think the ranges would appear to be inline with 2009 strip prices and the midpoints generally slightly lower than strip. Turnings to slide number 31, update on our 2008 forecast guidance November 6th forecast $2.10 to $2.30 down from our August 7th guidance reflecting these lower prices and if you turn the turn the page slide number 32 to 2009 forecast guidance of $1.25 to $2.05 again lowered to reflect sharply lower prices. Again, $60 to $90 of crude environment versus $80 to $120 previously and the $6 to $8 Henry Hub natural gas environment versus $8 to $10.50 previously, I would also note that we continue to include in our package here as well as on our website, our profit volatility relative to sensitivities in oil, NGL and gas prices and you'll see that on slide number 69, its there for your reference. Turning the page to slide 33, recurring segment profit guidance; and this is a high level of view of each of our business units and I think Ralph and Alan already have updated you. But again, you can see the change there and again that's largely driven by prices. Turning to page number 34, graphically depicts our Rockies basis exposure and I think the redline what indicate that we have little to know Rockies basic exposure in 2008 or 2009. Certainly, E&P has some basis exposure that's been mitigated by firm transport financial hedges, Midstream has the opposite exposure, and when you net the two together, we end up flat, or in 2009 slightly short Rockies basis. Turning to slide... page please to slide number 35, capital spending guidance, again Ralph and Alan went through there, guidance, Gas Pipeline is relatively steady. And the total potential capital, that you see in the bottom line there, which I would call now more total planned capital is down in 2009 about $350 million at the midpoint, and about $100 million down in 2008, reflecting tightening things up in light of these difficult economic conditions in very tight financial markets. We've deferred many of the additional growth investment opportunities at this time. And we'll move ahead again when conditions improve. Please turn to page to slide number 36. This is a look at how we think about cash flow and liquidity. You can see their, 2008; I'll just walk through this. We started the year with $1.234 billion cash. On October 31st, we have $1.1 billion of unrestricted cash and $1.750 billion in total cash and the difference is largely cash, it's international. CFFO of 31 to 33 backing of CapEx in the range of 34 to 36, and then a number of other factors including dividends, minority interest payments, our previous share repurchase would leave us with $600 million to $700 million of unrestricted cash at the end of 2008. Add to that, our credit facilities that are available to us, and we get to about a $3 billion number at the end of the year. Moving ahead to 2009, again, starting with $600 million to $700 million, CFFO in the range of 24 to 31 and the range is largely dependent on commodity prices. Back off 28 to 31 in capital spending, and then minus our dividends minority interest payments, and then we have a change in debt somewhere between zero and perhaps as much as $200 million of borrowings, brings us down to a cash balance at the end of 2009, somewhere in the range of zero to $300 million add to that credit facilities that are un-drawn of about $2 billion, excuse me... for total liquidity of about $2 billion. I would also like to note that in our appendix, we've included a number of slides relative to derivatives and related counterparty exposure. And those are included on slide 70 through 75, we're very comfortable with our derivative counterparty exposure. We think it's well managed and very small. In that all other counterparties are A rated or better with the exception of about less than 10 million of those counterparties. And the total aggregate exposure for those counter parties is $384 million on a net basis after collateral postings. And with that, I'll turn it back to Steve.

Thanks, Don. I have nothing to add at this point. So, let's take your questions. Question And Answer

Brandy, are you there?

[Technical Difficulty].

It sounds like we are having some technical difficulties. Let's give it a few minutes and see if we can get them solved.

[Operator Instructions]. Your first question comes from the line of Shneur Gershuni.

I knew that you're restricted on what you can say with respect to strategic review that you're that's currently underway. I was wondering if it's fair to say that investors tend to assume that something will actually occur that there will actually be a transaction of some sort of where you will be separating something you are selling something. And I was wondering also, if you can frame it, you had mentioned in your press release about how you are looking at a scenario where you like to maintain the strong credit profile, how that would occur if you were to separate the business out, how the credit profile would actually be able to maintain a strong credit profile, given that you'll be separating a strong cash flow assets from some of the assets that are, for example like E&P where, sorry excuse me, where you are potentially running beyond the cash flow and so forth? So I was wondering if you could, if you can answer those questions.

Thanks for the question. And the short answer is, no. We can't go into too much detail, I think look at our press release, we said that we were going to embark this evaluation and that, we would hope to be able to make an announcement in the first quarter as to what direction that we're headed. We've indicated that obviously the macro economic environment, credit market's energy prices and all kinds of other variables are going to be considered as part of the evaluation. And really have not commented at all as to what the timing of a possible transaction might be. Regarding the credit question again, that's I think its premature for us to try to speculate, I think we made very clear that an investment grade rating a strong credit profile was important to us today. And it's going to continue to be important to us in the future.

Okay. My follow-up question is just with respect to the Midstream business. There has been a lot of announcements by many of the E&P companies about scaling back CapEx and so forth given the current environment. Based on.... I'm sure you guys follow all the announcements and so forth. And I was wondering if you can comment and how you expect that to impact volumes at the Midstream segment and whether you are more or less sensitive to some of the areas that people thought, but looking to pullback some of that CapEx? Alan Armstrong - President, Midstream Gathering & Processing: Yes, great question. First of all starting with the deepwater, deepwater is probably the least sensitive to price just because it takes such a long-term perspective has somebody has to go into that business with because it takes four to five year even in the best case to develop a project out there. So, that's probably the least sensitive and we certainly continuously very robust drilling out there. The at West, if you look at our mix of customers, they are mostly the very a large well hill customers like BP, Conoco Phillips or larger customers out there and they have secured capacity out of that area and as far as we know continue on with a very robust drilling plans in those area. So, we're fortunate to have the position we have in the deepwater and our exposure out west is largely in those basins where we have got very large customers and we're fortunate to have that customer mix we have out there. And having said that we certainly from some of those smaller producer and so forth I would certainly wouldn't be surprised to see some of backing off out west but there not just very big make up of our overall customer mix out west.

Okay. And just one follow-up question to get some great clarity with respect to the margins, with the recent decline in oil prices have you seen a return to the traditional correlations between the NGL's how they would typically reacting the given the price where oil isn't given where the price of where natural gas is right now? Alan Armstrong - President, Midstream Gathering & Processing: Particularly on allied end [ph] products, we have not seen that return as seen in particular has been particularly weak. As there was quite a few plants that were knocked off by the hurricane particularly in the Burma and Orange area they've not returned to service. And so, we continued to see fairly weak demand on the afiame [ph] size as a result of those plants are being down. And so, we've continued to see that percentage to be a little bit low there. So, that's our current perspective on this.

Great, thank you very much.

Your next question comes from the line of Carl Kirst with BMO Capital.

Hi everybody. Steve, recognizing the sensitivity again what you can say, just too sort of clarify with respect to this review process. Is this something where its kind of the full review where all options on the table i.e. seller what have you or it is just really more sort of looking at kind of restructuring tax free spin only I just want to make sure what the scope with the view is?

Carl that's a great question but this one that I'm not going answer. We are very open minded.

Fair enough.

And are going to look at structural changes that may make sense going forward and again very open minded regarding the options that we consider.

Okay. Now, I understand there is only one for now you can say. Ralph can I just ask a question, can you help us, I'm looking at Piceance the rigs coming out I assume that's coming out of the highland. I think typically, we have tended to think of valley, 4 to 4.15 in that bank making your 10% after-tax cost of capital returns. If commodity prices were to fall further, could you help us rank order where you're seeing the best returns if you will.

The actual rig... first of all we are dropping some in the valley also. So we're dropping valley and highlands. We have some great momentum in Trail ridge area and the Rangoch [ph] area that we want to keep. So, we'll keep some in the valley... in the highlands. And so, obviously then that would drop in some of the valley. In general, all of our projects still at... even at lower October point of view that we are using the lowest return project we are seeing out there currently more in the 18% range and the highest is in the upper 30% range. So, we actually really kind of... obviously the Highlands is a little lower than Valley, just about the definition of the additional drilling we have to do. So, any additional initially that would be from the Highlands. And we have a lot of flexibility in what we pull out of the Valley. We don't have as much flexibility of the Barnett; we have very good returns from the Barnett because a lot of the Barnett leases is one of the few places we have, where we have three year terms and those kind of things. So, I would guess additional dropping would, if that's the question would be from the Valley and the Highlands, but, probably Highland's first, but we really like the level of activity we have in the Highlands, which is only in this based on plan we have here, it's basically 4.5 rigs, we have one rig, it's going to work at one point, finish up a few of our obligations there and then that rig will be absorbed into the portfolio overall. So, we only have four in the Highlands working. In general, our portfolio's returns are very strong, still in where some Willow running numbers as low as the $4 and $5 case type return.

$4 or $5 of netback or $4 of $5 buybacks? Alan Armstrong - President, Midstream Gathering & Processing: $4 to $5 Rockies.

Rockies, okay. Okay. And then Alan, just with respect to your comments on certainly where Ethane is, and I guess especially where Ethane is in convoy, looking at Rockies NGL margins is a little bit more challenging task with the data streams we have but, what are you seeing right now here in early October as far as spot NGL margins in the Rockies?

Well, again, we clear, and in either case, in the case of Overland Pass or in our historical Pass Out of the Rockies on the map of Seminole System, we clear our Ethane barrels at Belleview. Our heavy barrels looking forward, our heavy barrels will have the option of clearing at either Convey or Belleview. So, but to get to your question in terms of spot, it's no different, our pricing is no different than what you see as the Belleview posted prices for Ethane. We do clear some propane and heavies out of the Rockies, at our local fractionators and that typically works out to be anywhere from $0.05 to $0.10 higher than Belleview pricing.

Okay, great. And then just last question. More E&P again, Ralph, with respect to I know that the pie chart you have for the third quarter production roughly 22% was being sold into the Mid-Continent market. Can you refresh our memory where specifically in the Mid-Continent were you guys subject to any of the very low extreme spot prices we've been seeing over the last couple of weeks around center point?

Most of ours is ultimately it's priced into the Pan Handle market, so not as bad.

Okay. Thank you.

Your next question comes from the line of Lasan Johong with RBC Capital Markets.

Thank you. Steve, I know you again you restricted that. Let me see if I can attack question from a couple of different angles. My understanding would be that each of your three businesses have very low tax basis so a sale to anyone of those three businesses would produce a fairly large tax date, correct?

Johong,I don't think we are going to comment on that today again in terms of the specific form of the transaction, tax basis and any other details. I appreciate the question.

Okay. I will also assume that E&P on a standalone basis and Midstream on a standalone basis would have more volatility and if you combine the two, correct?

Well I think that's clearly the case you can the portfolio affect within our portfolio today.

And I would guess at the pipeline business is much more stable and so therefore on a relative basis can sustain more debt on the balance sheet than either one of those two other businesses?

That's a logical assumption.

Okay, great. Couple of questions, does the hurricane impact add up to about $77million?

Hurricane affects 50 to 65.

The 50 to 65 was just Midstream impact.

I think there was 25 from one and 52 from the other.

The comment I was making on the again those numbers I was quoting that was just impacting our NGL volumes as I said that 50 number that I quoted that was leaving out the olefins impact.

Oh I see.

So that's the difference in the way that was broken out.

And net overall CapEx reduction for next year is how much?

CapEx reduction from our prior guidance about $350 million at the mid-point.

Okay. And what is your new sensitivity commodity price changes for '09?

Lasan, that's detailed on slide number 69.

I'm sorry, I'm out of the office, now.

It is fairly complicated, so I don't think it's something we can go through, if you want to take a look at that and call Investor Relations.

Got it. Thank you very much.

Our next question comes from the line of Faisel Khan with Citigroup.

Don, on the slide there as you detailed the cash flow liquidity $1.2 billion. I take at the difference between that and what you have reported in your press release and $1.8 billion in cash is the difference that you've been overseas or un-patriated or un-repatriated is that correct?

It's the internet, principally international cash and then it's also some MLP cash and then call it cash itself. We're holding that belongs to our counterparties.

Okay, understood.

That's detailed on slide number 83.

Okay, fair I think that far. On the... going to the pipeline business or I should say, thinking about getting access of pipeline capacity out of the Rockies, as the rest being delayed a little bit, my first is, how does that effect your guys planning process at E&P Ralph. And I guess the second question related to pipeline capacities is what needs to get done to get free up some of these issues in the Rockies. This will be a necessity or just some other pipe out there that makes more sense?

This is Ralph. Let me take first part of that. It's factored into our Rockies exposure that we say for 2009, which is going to be similar to what we saw in 2008, which is about 14% to 16%. We have factored the delay of Ruby into that. So, if Ruby, obviously we'd come on and we're assuming Ruby is very late... I am sorry, late not Ruby, pardon me. We've factored Rex coming on to fourth quarter versus earlier I think it must be like more mid-year. So, to the extent it comes a lot of earlier than that, then that number obviously would decrease. So, our exposure is factored into a decline or a delay in the Rex, I am trying to get R is correct.

Sure.

In the Rex pipeline. We also have added on to our portfolio opportunity on basin but for part two, let me let Phil take part two, of that right.

Faisel, this is Phil Wright. Clearly there is enough gas out in the Rockies to justify construction of a large dam or our pipe to the west. The market is indicative to us they prefer route to stand field and in particular, due to market growth our market area customers who have signed PAs to support that convection if you will. We and our partners are continuing to work to fully subscribe Sunstone. We believe there is enough producer support will be to see a project get build in the originally forecast timeframe, but it's also possible that a smaller scale project built later can be attractive to customers as well. So, our strategy is to work with customers to right size and route a project that we think best meets their needs.

Okay. So what you are saying is that there is the... the first necessity is to move gas western to an east, is that kind of how you are thinking about it?

Well, that would be our assessment.

Okay, got you. And then sticking with the E&P, I guess, what's the plan now with the results that you have in the Barnett shale, where do we go from here?

Well, we obviously need to hook the wells up, and build a smaller processing faculty up there initially over the plant which we will do next year, get the wells on extending productions testing. We're drilling our third horizontal well, which is an offset to the Koski [ph] and we intend to... with our partners drilling at probably seven additional horizontal wells next year. So, really just continue to test it, see what we have for the wells that we have on, and that we're drilling now one extended production testing begin some preliminary facilities. That gas would flow to Seminole Basin, which we think is a good area to do that too. Can probably be a North West pipe down there. So, the plan is just to continue to confirm what we have and move from there.

Okay, got you. On the Midstream side equation, I guess the NGLs that are coming out of storage in the fourth quarter, how are those being priced, are those being priced related to your hedges you have in place or maybe in priced up market?

No, there is, since there is incremental barrels, over and above our hedge in effect that you could say it's one of the other, but at the end of the day, the net impact will be at market on those barrels.

Okay.

So, they went in, they would have gone in order to cost of good sold is what they would have gone in into inventory pricing at. So, basically that fuel and shrinking transport price.

Okay.

And it will come out at and whatever the market is that time.

Got it. And then you did... I think you addressed the question on the deepwater projects that you guys are looking at. You're saying that those projects are fairly inelastic to the price, or because there was a long-term, the long-term project people contemplated for a while?

Right. And also the combination of the fact that, you have to take out very long-term contracts generally around those drilling rigs, those big deepwater drilling rigs and so people walk themselves in a quite a bit of that capital out there. So, there's still plenty of competition for both pipeline capacity and drilling rigs as we speak. I'd say the risks long-term to that, the risk long-term would be the re-up of that business if cash flows from the E&P company started to wane and they didn't have the capitalization to go forward with that. But, we're not seeing any reaction to the current spot pricing that's happening right now.

The projects that you guys talked about in I guess in June, July where and the potential projects that the potential TLPs you guys have talked about, there is opportunity still remain out there?

Absolutely.

Okay. What about in Canada? I mean, you see a number of announcements that some of these up graders are kind of delayed the push back, how does that affected your business out there?

Yes. In Canada, much of the business that we were pursuing up there is already existing up graders. There was a large project we were pursuing that has been delayed, there was an up grader project, it has been delayed up there. And so, it will impact to some, but quite frankly there is probably more opportunity up there than we have the resources to pursue. So, we're not to terribly disappointed by that at this point in time so, but we certainly have.... certainly it will take some of the up side, but again, we have been pretty conservative in assuming what proportion of business we could capture up there.

Okay, great. Thanks, guys for the time. I appreciate it.

There are no further questions. Mr. Campbell, do you have any closing remarks?

Yes. I'll, just Steve, I would just say that... and I think that Williams has a very good reputation in terms of doing what we say we're going to do and coming forward with a plan executing on that plan. And so, regarding the announcement that we've made about exploring changes, structural changes, I think that you can expect that we will announce a specific direction in the first quarter. And so, with that, I appreciate your interest and your participation. And we look forward to talking with you again. .