Sharna Reingold - IR Alan Armstrong - Chief Executive Officer, President, Director, President of Midstream Gathering & Processing, Chairman of Williams Partners GP LLC and Chief Executive Officer of Williams Partners GP LLC Donald Chappel - Chief Financial Officer and Senior Vice President Randall Barnard - Senior Vice President of Gas Pipeline Rory Miller - Senior Vice President of Midstream

Michael Karsch Rebecca Followill - Howard Weil Theodore Durbin - Goldman Sachs Group Inc. Bradley Olsen Carl Kirst - BMO Capital Markets U.S. Stephen Maresca - Morgan Stanley Sharon Lui - Wells Fargo Securities, LLC

Good day, everyone, and welcome to the Williams Companies Second Quarter 2011 Earnings Release Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Sharna Reingold, Director of Investor Relations. Please go ahead, ma'am.

All right. Thank you and good morning. Welcome to the Williams second quarter 2011 earnings call. As always, thank you for your interest in the company. As you know, we released our results on August 3 after the market closed. Yesterday, Alan Armstrong, our President and CEO, had some commentary about our results. This audio commentary and slides are available on our website, williams.com, that we will not be reviewing our slides this morning. In a minute, Alan will make some brief remarks, and we will open the line for questions. Please be aware that Don Chappel, Ralph Hill, Rory Miller, and Randy Bernard are all available for any questions. Please note that all the slides are available on our website, www.williams.com. There are forward-looking statements on Slides 2 and 3 and the disclaimer on oil and gas reserves on Slide 4 of yesterday's presentation. They are important and integral to the company, and you should review those slides. Also included in the presentation yesterday are various non-GAAP numbers that have been reconciled back to measures included in generally accepted accounting principles. Those reconciliation schedules and related information are included in the slides available on our website, williams.com. With that, I'll turn it over to Alan.

Great, thank you, Sharna, and good morning. Thanks for joining us this morning in such a busy time in the markets. We certainly did experience a great second quarter. Our adjusted earnings per share was up 39%. We are increasing our full year earnings outlook based on the strength of the first and second quarter, and all of our business segments contributed to the gains that we had in this period. While all our business segments are performing very well and growing according to plans, we also continue to work hard on restructurings at the corporate level to unlock value for our shareholders. As you're well aware, our WPX IPO, which I'll comment on in just a moment, continues to move ahead. And we are moving to a growing dividend company and expect that value to unlock significant shareholder value for WMB. Our WPZ Holdings and our Canadian midstream olefins give us a very clear line of sight to this sustainable growth for the WMB dividends for years to come. We continue to be very focused on maintaining our investment grade credit and maintaining a very conservative approach to managing our margins within our WPZ segment. And this gives us a very clear growth trajectory and also gives us a very clear backlog. We have a very clear backlog of the great projects and we're very excited about for our future. So we've got great situations. We sit here today and we also have great transparency about where our growth is coming from. So we really continue to be very excited about how we're positioned today in these markets. And so, before taking your questions though, I do want to briefly address our previously announced proposal to acquire Southern Union Company. But this time, Williams continues to closely monitor the situation and we are evaluating all of our options. We won't have any further comments today regarding Southern Union or the agreement they have with Energy Transfer. I also have a few brief comments about our planned IPO of WPX Energy. We are ready to go with the WPX Energy IPO so as soon as market conditions are cooperative, we will be prepared to launch that. At this point, we still plan to get the IPO done in the third quarter and full spin no later than the first quarter of 2012. So as a reminder though, the purpose of our call today is to discuss our very strong financial and operational performance in the second quarter and our new higher guidance for 2011. We intend to keep today's call focused on those topics, and so I appreciate your cooperation on that. We can now open the call for questions. Operator?

[Operator Instructions] We'll take our first question from Carl Kirst with BMO Capital. Carl Kirst - BMO Capital Markets U.S.: Just a very quick clarification, if I could, on the WPX IPO, because you just said market conditions are cooperative. Does that mean the SEC has declared it effective? I hadn't looked at that but I just want to make sure that that's not the hold up. It's now just more of your decision on when to go?

Yes, it is just our decision on when we're ready to go. That is correct. Carl Kirst - BMO Capital Markets U.S.: Okay. Fair enough. The questions from the quarter I guess really were twofold, really, on the Canada and the olefin side. And I guess on the olefin side, you had mentioned that it looks like we are going forward with an expansion of Geismar at least as far as some of the project capital that is now being put into the guidance. And I was wondering if you could give us a better sense of how you're approaching risk management to that kind of project with respect to ethylene prices going forward. Is part of doing this expansion an offtake agreement with someone, or how should we think about risk management in terms of the Geismar expansion?

Sure, I would just first say that remember that on the ethane basis, we're still long ethane as Williams. And so that project actually gives us some hedge on the ethane pricing all the way through the ethylene margins. So as we've said before, we're fairly confident in the gas-to-crude ratio remaining and we're fairly confident in ethane continuing to be a favored feedstock. And ethylene continuing to have strength in the markets. What we're not so confident in is about who makes, who gets what cut of that pie. And so by having ourselves positioned all the way between the gas all the way to the ethylene, we feel like we're de-risking some of those margins and making sure that we're not getting somebody else stuck in between us and the full margin spread there. Having said that, we are talking to a number of parties about offtake agreements. And there is a lot of interest around that kind of project. We already have embedded in that.

Yes, the other thing I would say is there have been a lot of announced projects. Probably they're not all going to get built, but a number of them can. And I think in terms of the Q, in terms of when this expansion could get placed, we think we are probably in the next tranche to pass it and come into the markets. So we think timing is right, and that there's a window of opportunity for us ahead of the other announced projects. Carl Kirst - BMO Capital Markets U.S.: And, Rory, I'm sorry. Have you guys actually announced either the magnitude or when the expansion would be in service?

We've not formally announced that. I think Alan mentioned it in the call in the pre-recorded reported comments. But it's about a 40% plus increase in capacity there at Geismar. And we're shooting for some time, probably late 2013, for in-service. But as Alan mentioned, that will be going before the board in September. Carl Kirst - BMO Capital Markets U.S.: Great. And then last question if I could, just on the Canadian side, with the olefins and the upgrader, it looks like more project capital is going to go into the upgraders as well. How should we, in that table we had the project capital, you guys also have been pretty good at laying out expected EBITDA and the like. Obviously it's a little premature at this stage. But should we be thinking about return potential in sort of the same ZIP code as say, for instance, the ethane recovery and kind of the 5 to 6x EBITDA deployment? Or can you give us a better sense of how we should be thinking about that deployed capital?

Yes, I think the returns on the new projects are going to be generally in that same [indiscernible]. It's what we've seen so far.

And next, we'll go to Steve Maresca with Morgan Stanley. Stephen Maresca - Morgan Stanley: I really appreciated that you can't really talk about the subsituation you're monitoring. I wanted to offer if I could now one very high-level question. Do you feel -- when will we expect possibly to hear something, timing wise or do you feel you're up against the cost timing wise to either say we're involved or we're going to try and do something, or we're going to move on?

Well, Steve, you know as I said, we certainly are going to be a disciplined buyer. We certainly have exciting prospects for growth and value creation in our existing strategy in executing our existing strategy and our plan to separate off our E&P business as well. And so as I mentioned earlier though, we're going to try and address this call in the second quarter results and outlook. And so it's hard to get into a conversation without waiting outside of the strict script on that so I... Stephen Maresca - Morgan Stanley: Okay. No, I appreciate that. Maybe you can talk a little bit on just with the weakness recently in oil prices and how should we be thinking about that impact on when we may be start to see switching, or moving away from use of ethane?

Sorry, Steve. If you -- I don't think we quite understood the basis of your question there. Stephen Maresca - Morgan Stanley: Just wondering if we're going to start to see, with the weaker oil price environment from your vantage point in the midstream side, are you going to start to see a move away from petrochemicals using ethane as a feedstock? Have you started to get indications of that? How do you think about that over the next couple of quarters?

I think we've got a long ways to go before we get into that territory. Remember gas has moved down as well. And so, I don't think we're anywhere near that kind of ratio that we would get to that. We have seen situations where gas oil is at times pricing below ethane a little bit. But it's got a long ways to go. If people started getting on that, it would bring that price up pretty quickly as well. So I don't really see that in this, in the $80 price oil environment and the $4 gas. That's still a 20 ratio which used to be something that we wouldn't even dream of. And so, I think we're a long ways from getting to a point where ethane is not the favorite feedstock. Stephen Maresca - Morgan Stanley: Okay. And then the final question, can you just talk where you are right now on the next kind of several quarters you see some of the bigger bottlenecks on the oil and liquid side as opportunities for you guys?

Yes, and I do think there's a lot of emerging bottlenecks, and we're seeing them in a lot of different places. And I think there's a lot of infrastructure acquired in the field and we certainly have our eye on some of that. And Ralph's team has certainly done a great job of getting their product moved out of the Bakken. But as that field grows, we certainly think it will continue to grow. We think there's going to continue to be a lot of need for a long term permanent infrastructure in those plays, as well as on the propane and heavies. And just general petchem business in general, there's a lot of shifting of volumes that is happening with this increased volume on both the light NGLs, the heavy NGLs and the olefins products. And so we are positioning ourselves to play and what we think will be a big shift. One of the shifts obviously is Bellevue products, to either locations like the Mississippi River markets. And so, we're certainly right in the middle of opportunities like that and we continue to pursue those.

Okay. Great. Next, we'll go to Ted Durbin with Goldman Sachs. Theodore Durbin - Goldman Sachs Group Inc.: Just going back to the Geismar question. I saw that you signed an agreement with Crosstex for some takeaways -- are you locking in any sort of feedstock costs there or is that just more pipeline services and frac and whatnot?

That is obviously a confidential contract. But it is a way for us, we think, to get some advantage pricing in the river. Alan mentioned some of the bottlenecks out there. We think that that's a going to be a very valuable contract for us, particularly with our Geismar expansion. Theodore Durbin - Goldman Sachs Group Inc.: Okay, and then just shifting over to E&P, you said you had 70 a day I think that's weighing on the laser pipeline. What kind of exit rate are you thinking about in the Marcellus as we come out of 2011 and then looking at the 2012, I think you said you were going to run 8 rigs in 2012?

I don't think we've given specific by area by basin yet, so I'm not sure if I'm during this period I'm not sure I'm allowed to do that. But clearly, we have a substantial amount of back up in the Marcellus and Laser [ph] field is going to come on in September. We also have in the Westmoreland, Clearfield Centre County areas, there's a backup about another $30 million. So I would need to check and see what we've given out publicly before I can do that. But we obviously have said that in the future we expect the Marcellus to grow to be around when 20% or so of our volumes as we move forward. Theodore Durbin - Goldman Sachs Group Inc.: Okay. That's helpful. And then just on the Canadian side, you talked a little bit about the sun greater -- the Suncor, excuse me, upgrade or downtime. How much did it actually hurt you from a volume and a margin perspective in the quarter?

It was a pretty big blow from a volume perspective. The good news is the margins were so strong over that period, net-net we were about even with what we've forecasted. So the strong margins definitely helped there. But there's no doubt about it that it's hard to replace 49 days of production.

It's really as simple as 49 days. We normally would see a couple of days of downtime. So you really could call it probably about half from a volume standpoint.

And next, we'll go to Becca Followill with U.S. Capital Advisors. Rebecca Followill - Howard Weil: I apologize I did not listen to the podcast with the craziness in the market yesterday but and I know you're going to probably talk about it on the WPC call, but can you talk a little bit about Atlantic access project? It looks like that's gearing up again. And can you talk about cost estimates, time of open season, a little more color on that project?

Yes, I'll be happy to. This is Randy Barnard with the Gas Pipes. We've been out in the market surveying the interest in our project and are very encouraged by the recent visits. It's a predominantly a producer-driven project. It's evolving to recognize the different geographies of the source or the supply; also evolving to recognize the different timing of in-service needs for the various potential shippers. Bottom line is we think we could have a project to announce by Q4 of this year. Open season within the next 2 to 3 months, bore outs expiring October for shippers and a month later for ourselves. A possible slippage into Q1 next year, but it's very encouraging right now for a late this year announcement. Rebecca Followill - Howard Weil: Any ballpark cost estimate?

It's in the neighborhood of $1.4 billion. But like I said, it's evolving. We may phase the project and there may be some telescope capacity. So as we refine it, that number could move. The slide -- once you get around to looking at the slides that were placed on our website, you will see that we have categorized the potential opportunities of the gas pipeline at around $1.7 billion. $1.3 billion of investment in guidance, $1.7 billion, if possible. And Atlantic access is the lion's share about $1.7 billion. Rebecca Followill - Howard Weil: Okay. Yes, I saw the ones over at the WPZ. And is part of that a reversal of flow on Transco and just looking at the slides there's an arrow that points down.

Actually not immediately, but as Marcellus grows, the reversal of flow is truly within the realm of the plumbing there. The growth we expect to Marcellus will outstrip the zone 6 demand eventually. So physical backflows may happen. But what Atlantic access offers to customers initially is firm backhaul opportunities into the Transco zone 5 which its fastest growing markets today. I mean, a lot of PowerGen load coming on incremental and convergent from coal. And so it would be a firm transportation backhaul into zone 5, with some secondary rights into zone 6. And that would take their delivery points all the way down to the Georgia-South Carolina border at the end of the zone 5 Transco which would include Alba island as a potential if it's ever reversed and it includes cold point and everything in between.

And next, we'll go to Michael Karsch with Karsch Capital.

Two questions, my first one is on the IPO. If market conditions are not suitable, what could you just go right to the spin instead of having to do both steps?

Michael, Don Chappel, good morning. Yes, we could. Again our current plan is to continue with the 2-step process IPO, hopefully this quarter followed by complete spinoff not later than the first quarter but we certainly could change those plans if the market conditions remain challenging.

And then I guess the second question, I won't make it specific to the SUG acquisition, I'll ask it overall. If you bought an a company which you envisioned dropping down to WPZ, a substantial amount of assets which required an equity raise at WPZ, how do you think about -- let's just say that acquisition takes some period of time to close, how do you think about the accretion when your stock price could move, your WPZ stock price, can move very substantially between the time you agreed to a deal and the close? Are there ways to mitigate that exposure?

Michael, I think as a follow-up to Alan's comments I don't think we want to go into the Southern Union example, but I mean, clearly, we're looking at that with every capital project that we put on...

Exactly, that's why I asked it generically. I guess what I'm asking is you have 2 structures. If you felt like WPZ stock was down too much, could you just hold the assets for a longer period of time at the WMB level and not feel like you have to issue equity to WPZ level.

I would just say I think we have a lot of flexibility and the situation is different. And we're faced with changing markets on regular basis. Good news is again WPZ has a good strong base of assets and earnings and cash flows and great growth. We think it'll be a security that investors show strong preference to, we've great coverage. So we think it will outperform the MLP space. But there will be times when it's the whole market is tough and the MLP market's tough too. So we'll look to have contingency plans in everything we do.

[Operator Instructions] We'll take our next question from Bradley Olsen from Tudor, Pickering & Holt.

You mentioned earlier on the call the fact that as a company, your long ethane and just to kind of hit on that, that Crosstex Geismar agreement, what was the thought process, I guess, strategically when you are thinking about whether to supply Geismar with ethane from a third party versus ethane from either WPZ or from the WPX business?

Yes, I think looking at that Crosstex deal, an opportunity to see a new pipeline built from Bellevue to the river area or at least to a point that it could get into our ethane system would be a great opportunity for us. Crosstex has got the kind of energy and the will to get that done. And it was way to help to get that project going and help make that a reality. We think that also is going to give us a preferred ethane price on the river compared to the other transportation options. And so for us, it seemed like kind of a no-brainer. They have the will to do it, they had some latent assets there that they can put back to use at Eunice, so it was a very good fit for us and we want to support it.

I would also mention there that when we say we're long ethane, obviously that is at various cleared markets. And so as long as those markets are connected and fairly liquid between the spots, we're not obviously focused on just moving our molecules of ethane into our locations. So it's more a commercial link than it is actual physical molecules. We're concerned about managing.

Okay. As far as the comment that it was good to see a new pipeline from Bellevue built into the region, does that imply that you guys were concerned about potentially being short-ethane in the absence of that Cajun-Sibon extension?

Well, more is always better if you're buying ethane. And so there's been a pretty significant delta and price between those 2 points, and this was an opportunity really to close some of that gap.

Okay. And just jumping to the Marcellus, it looked like there was, on the wet cash, you mentioned that CapEx budget was slipping a little bit in 2011. Is that associated with some slippage and the timing of Marcellus projects? And I guess to that, if it is related to that, if you could maybe just discuss the kind of state of permitting up in Pennsylvania, and whether you've come to an agreement on where Springville is going to enter Transco.

Yes, just some general comments about Construction in the Marcellus, it is one of the tougher places in the country to build pipeline. The geography there is obviously not flat anywhere across the basin. There's a lot of farming, a lot of human interaction in almost every mile of pipe you build. And so the other thing I would add too around permitting is you have to deal with the townships there as well. So there's another level of permitting that you have to go through, which adds some complexity to it. The area in general has not seen the kind of activity that they’re seeing now, ever. And so, there is a lot of change in the rules, if you will, that adds complexity as well. So it has been a challenge I think over the last 2 years. We certainly perfected our model around how to execute significantly. But nevertheless, things are moving more slowly than we would like. I think it's the same on the producer side as well. Everything is a little more challenging to do in Pennsylvania than it is, say, in the highlands of Wyoming. So it is a challenge, and we think we're making good progress on it. But nevertheless, there's some slippage. It's not any indication of the quality of wells or the success up there, which has been phenomenal so far, particularly up in the Northeast area, all of the performances exceeded what we had in our plans. So we're delighted with the quality of wells, but the construction is the top spot. On Springville, we got all our major permits at hand that we need to get that pipeline built. We're under construction right now. We're clearing right away. We've got the major work going on the compressor stations. We have all of our permits in hand for our major bores that we got to do, some waterways and some roads. So everything that's on a critical path right now, we have a permit in hand for it. So that's moving nicely. We do have a couple of minor issues we're working out on the tie and point to Transco, but we're confident that going to be resolved shortly.

And so you guys are still confident that Springville is a late 2011 event?

Yes, we're looking at late 2011.

And we'll now we'll take our last question with Sharon Lui with Wells Fargo. Sharon Lui - Wells Fargo Securities, LLC: I guess, given the potential for a weaker economic environment and even potentially a double-dip recession, how do you think that would impact, I guess, the petchem's willingness to build steam crackers? Do you think that might delay the timing of their decision? And if so, could the market be oversupplied with frac capacity?

Well, that's a very, very complex question, obviously. I would just say, first of all, that the market that all of the new olefin capacity is being built for in North America is not focused in North American markets. It's focused at exports. And so the global economy, obviously, is the thing to keep our eye on there. And expansions around the globe, I think are critical to that. So I do think that obviously, a continued downturn in the economy would have some people backing up. As Rory said, we think we are first in the queue there, so to speak with our planned expansion. But I do think that you'd have people checking and double-checking if we went into another recession like we were in before. There's not much doubt in my mind that, that would be the case. Whether there is ample frac-ing capacity to clear the fractionation capacity that's being built right now, I think it's a pretty complex question. Clearly, the NGL space is building up very rapidly. And there is going to have to be some cracking capacity built to consume that. And so I think it's a great question. I think it's a little early to call that, given the very near-term events we're seeing.

And that's all the time we have for questions today. I would like to turn it back over to our speakers for any additional or closing remarks.

Okay, great. Thank you all very much for joining us. Again, very excited about our second quarter. We continue to be very confident in the balance of '11 and '12 and beyond, given the transparency I think we have to a lot of great projects that we think the fundamentals remain very sound on. And while we didn't hear too much question about the current NGL market today, we can tell you that we remain very confident in the margins as they exist today, partially because of how high the margins got at the end of the second quarter and into the third quarter, how high they've been. We've got plenty of room for that to slip down and still be maintaining our guidance. So we really haven't seen the degradation in that market here in the last couple of days that you might be expecting. So we remain very confident about both the third quarter and through the balance of the year and excited about the growth in our businesses and the way those are all executing. And very proud of the way this organization is executing on both running the business, and as well as doing things like preparing for the IPO of WPX Energy. So great efforts around here and great results to show for it. So again, thank you very much for joining us this morning.

And that does conclude today's conference. We thank everyone for their participation.