1910 Execution: What we deliver

• William Howard Taft was President • First Flight by Wilbur and Orville Wright • 8% US Homes had Telephones • 6% US Population Graduated High School • 47 Year Life Expectancy for Men

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That was then . . . Williams – Established 1908 • Domestic US Operations in 1 State • Started Business Pouring Sidewalks • Maverick Mentality – No Partners • Shouldered All Risks • Reaped Entire Rewards 1910

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This is Now: Williams – Spanning the Entire Supply Chain Approximately 30% U.S. Gas Volumes Touch Our Systems

>

© 2015 Time Inc. Used under license. FORTUNE and Time Inc. are not affiliated with, and do not endorse products or services of, Williams.

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A Tale of Two Pipelines CONSTITUTION PIPELINE

KEATHLEY CANYON CONNECTOR

$4.8m

$1.7m

per Mile

per Mile

Regulators:

Regulators:

1

Dozens

Strict, But Clear

Overlapping

• 122 miles, large-diameter, interstate pipeline

• 200 miles, large-diameter, high-pressure

• Northeast Pennsylvania to Upstate

• Gulf of Mexico, >215 miles SW of New Orleans;

New York

4

7,000’ of water

• Steel cost: $660k/mile

• Steel cost: $920k/mile

• Hilly terrain

• Hostile terrain

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Execution: What we deliver

How are things evolving? • Complexity • Pace • Scrutiny • Partnerships • Project Types & Requirements

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Execution: What we deliver

How do we differentiate ourselves?

Risk Management 6

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Applying Risk Management Process at Williams to Achieve Best in Class Project Delivery Marcus Rice, Risk Analyst, Engineering & Construction, Williams Southern Gas Association Conference Tuesday July 21, 2015 8:00 AM

Agenda/Outline for This Morning's Presentation 1. Case Study 2. Risk Process 3. Return on Risk Management

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Keathley Canyon Connector Project

– 20” 209 mile gas pipeline – Shallow water 4-pile platform (unmanned) – Methanol Extraction plant

This project delivered a large diameter deepwater gas gathering line servicing new developments planned in the Keathley Canyon area of the Gulf of Mexico. The result is a new-build 20” deepwater gas export line, a built-forpurpose junction platform, and two (2) export laterals (one provided as an emergency outlet to a third-party pipeline and the other as an outlet to an existing 30-inch pipeline system.) 9

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Keathley Canyon Connector Project

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KCC Risk Management › Proposal Development • •

High-level cost risk assessment (confidence level and event risks) All risks priced (incl. Loop Currents, Named Storms)

› Project Execution –Construction Pre-Start • • • •

Limited WFS exposure on steel prices and ForEx Span mitigation risk transferred to Producer Loop Currents, Named Storms, Regulatory Delays transferred to Producer Producer’s risk premium reduced by efficient risk allocation

› Project Execution – Construction Start • • • • • 11

Survey ranges reduced Materials ranges reduced (steel price and ForEx locked) Installation ranges reduced (lump sum portion of installation fixed) Reduced soil conditions risk (based on the survey results) Allowed for pipeline contingency to be reallocated

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Execution: KCC

KCC Knowledge Management Ø Risks Managed Ø Assumptions in budget estimates Ø Major scope variations occurred in close conjunction with approvals Ø Industry inexperience in new and evolving offshore regulations and codes Ø Offshore industry consolidation and resulting rate increase Ø Skilled Labor shortage due to increased activity in the area Ø Increased oversight of suppliers and contractors due to inexperience or attention to the job at hand

Ø Improvements Embedded in Later Projects Ø Identify areas that are major risks in the project and allow completion of a front-end engineering design (FEED) prior to sanction Ø Freeze the scope and follow change management if adjustments are required Ø Staff jobs to cope with the shortcomings of skill sets in the industry 12

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Risk Process

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Risk Process Risk Management Planning Risk Identification

Knowledge Management

Risk Monitoring and Control

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Risk Assessment

Risk Response

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Project Risk Management Embedded within Stage Gated Life Cycle Option Selection

Feasibility

DISCOVER

Scope

SELECT

Operations Start-up

Commitment

DEFINE

DELIVER

VENTURE RISKS • Customer / site specific risks • Deal makers and breakers • Economics / commercial outcome • Risk allocation strategy / deal structure

INTEGRATE

PROJECT EXECUTION RISKS • EH&S (managed through EH&S process) • Cost • Schedule • Quality, etc.

Objectives

Identify key risks and ensure they are manageable / acceptable; select option with the best risk / reward profile

Ensure readiness for managing execution risks

Ensure that key risks are being managed

Ensure lessons learned have been captured

Activities / Tools

• Early risk identification, assessment, mgmt. • Risk valuation & contractual allocation

• SRA / CRA • RM Plan • Risk Register

• Execution RM • Risk Reviews • Risk Reporting

• Lessons Learned

Factored estimates, conditioned for major project risks

High-level estimate and Monte Carlo risk assessment

Detailed estimate and Monte Carlo risk assessment

Revised estimate and contingency as needed

Actual cost analyzed for future benchmarking

% of Base

% of Base

% of Base

Actual

Cost Estimate Contingency / MR

% of Base

Monte Carlo Risk Assessments 15

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What’s the Number?

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Single Point Estimate

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P50 Cost Target

P50 Estimate at completion (EAC) 18

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In-service date (ISD)

P50 Cost and Schedule Target

P50

P50 Estimate at completion (EAC) 19

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P50

ISD contingency

Base Estimate

EAC contingency

In-service date (ISD)

Contingency

P50 Estimate at completion (EAC) 20

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Management Reserve

Management reserve (MR)

P50

ISD contingency

Base Estimate

EAC contingency

In-service date (ISD)

P90

P50 Estimate at completion (EAC) 21

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P90

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Modeling Real World Uncertainty and Risks Offshore Weather Delays Example Uncertainty

Risks

- Continuous ranges - Market conditions / quality of estimate

- Binary events - Items on Risk Register

70%

+

30%

x No Yes

6 Days 10 Days Best Case Base Allowance

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16 Days Worst Case

7

14

30 % Chance of 7 to 14 Days Tropical Storm Risk Event

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Risk Process: Risk Assessment

Prepare Base Estimate

Define Confidence Ranges

Identify and Quantify Event Risks

Perform Monte Carlo Analysis

Establish Contingency & MR

P50 Contingency P90 Management Reserve

ML

Min

23

Probability x Impact

Max

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Performance & Predictability

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The issue of Trust

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Take-Away’s

• Risk Management is a Continuous Process • Decision Analytics Capabilities • Stakeholder & reputation management Performance & Predictability Creates Trust between Us and the Customer and Trust Among Investors and Analysts.

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Questions & Conversation

BACKUP

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Capital Cost Risk Assessment Scope Cost Uncertainty

Confidence Level Uncertainty

Event Driven Risks

Scope Changes Commercial Risks

ML

Min

Probability x Impact

Max

- Market Conditions - Data Quality - Line Item Ranges

- Uncertain Events - Potential Cost Impact - Risk Register Items

Operational Risks “Black Swans”

Capital Cost Risk Assessment Scope 29

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© 2015 The Williams Companies, Inc. All rights reserved. Updated: 9-5-2013

Risk Process: Confidence Level Uncertainty

P90 Confidence Level Management Reserve (16 MM)

P90 Estimate = $480M

P50 Confidence Level Contingency ($ 14 MM)

P50 Estimate = $464M

Allowances ($5 MM) 445 450 30

464

Base Estimate = $450M (In this example equals P10)

480

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Risk Process: Event Driven Risk (Post-Mitigation)

P90 Event Driven Management Reserve ($ 50 MM)

P90 Event Risk Cost = $50M

P50 Event Driven Contingency ($30 MM)

P50 Event Risk Cost = $30M

0 31

30

50

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Risk Process: Cost Risk Assessment P90(C)

P90(E) P90 Mgmt. Reserve

P50(C)

P50(E) P50 Contingency

Base Cost 0

Cost Estimate Line Items

Value $ MM

Neat Estimate Activity Allowances Base Cost Estimate

445 5 450

100%

P50 Confidence Level Contingency*

14

3%

P50 Event Driven Contingency**

30

6%

494

109%

P90 Confidence Level Management Reserve***

16

4%

P90 Event Driven Management Reserve****

50

11%

560

124%

P50 Cost Estimate

P90 Cost Estimate 32

% of Base Cost

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Notes: **** P50 CL Contingency = P50(C) – Base **** P50 ED Contingency = P50(E) **** P90 CL MR = P90(C) – P50(C) **** P90 ED MR = P90(E) – P50(E)

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Risk Process: Schedule Risk Assessment Bluegrass Phase 1 - Segment 1 Pipeline (Pre-mitigated) 1.1.2 - PROJECT In-Service : Finish Date 100% 22-Aug-17 95% 10-Oct-16 90% 18-Aug-16

2500

85% 13-Jul-16 80% 20-Jun-16 75% 03-Jun-16 2000

65% 16-May-16

Hits

60% 06-May-16 55% 29-Apr-16

1500

50% 21-Apr-16 45% 13-Apr-16 40% 06-Apr-16 1000

35% 30-Mar-16

Cumulative Frequency

70% 24-May-16

30% 23-Mar-16 25% 16-Mar-16 20% 11-Mar-16

500

15% 07-Mar-16 10% 29-Feb-16 5% 19-Feb-16 0

0% 18-Jan-16 07-Feb-16

25-Aug-16

13-Mar-17

Distribution (start of interval)

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Risk Process: Schedule Risk Assessment

Deterministic Duration / Milestone P50 Duration / Milestone P90 Duration / Milestone

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Risk Tools: Risk Register

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Risk Tools: Risk Assessment Matrix

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Risk Tools: Risk Modeling Software @Risk Primavera Risk Analysis (PertMaster) Post-Mitigation Event Driven Risk Cummulative Distribution Curve 100% $186,479,770 95% $123,811,050 90% $113,128,940 85% $106,079,578 80% $100,151,173 75% $95,544,179 70% $91,316,264

ML

60% $83,748,587 55% $79,801,068 50% $76,312,717 45% $72,851,609 40% $69,264,938

Cumulative Frequency

65% $87,371,236

35% $65,737,563

Min

Max

30% $62,081,874 25% $58,101,199 20% $53,639,916 15% $48,713,291 10% $42,896,784 5% $34,766,816 0% $10,454,086 $50,000,000

$100,000,000

$150,000,000

Total Project Cost

Crystal Ball

ML

Min

37

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Max

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Risk Reporting: Risk Management Report

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