Williams Partners Reaffirms Distribution-Growth Guidance Despite Lower Commodity Margins and Earnings Guidance
Williams Partners Reaffirms Distribution-Growth Guidance Despite Lower
Commodity Margins and Earnings Guidance
* Maintaining Guidance for Strong Annual Distribution Growth - Up 8% in 2012
and 9% at Midpoint in Each 2013 and 2014 on Strength of Fundamental
Business and Continued Growth
* Holding Firm on 2014 Guidance Midpoints of $2.3 Billion for Distributable
Cash Flow
* For Full-Year 2012, Lowering Guidance Midpoint to $1.6 Billion for
Distributable Cash Flow; Lowering DCF Guidance Midpoint to $1.9 Billion
for 2013
* Lowering Estimate for 2Q 2012 Distributable Cash Flow to Approximately
$289 Million, Down From $475 Million in 1Q 2012 and $397 Million in 2Q
2011
* 2013 and 2014 Guidance Reflects Growing Fee-Based Business, More Normal
Maintenance Capital Spending, Benefit of Projects Coming Into Service and
NGL Margins Similar to Expected Full-Year 2012 Level
* Expecting Midpoints of Distribution-Coverage Ratio to Be 1.00 in 2012;
1.03 in 2013; 1.05 in 2014
* Key Driver Is Sharply Lower Near-Term NGL Prices Resulting From Record
Warm Winter, Low Ethylene Cracker Utilization, Growing Supplies, Other
Factors
* Pursuing Agreement to Acquire Williams’ 83.3% Interest in Geismar
Olefins-Production Facility; Expect Acquisition Would Be Accretive and
Shift Ethane Price Exposure to Ethylene
* Developing Attractive Growth Projects to Meet Growing Infrastructure
Demand
Business Wire
TULSA, Okla. -- July 23, 2012
Williams Partners (NYSE: WPZ) today reaffirmed its previously published
outlook through 2014 for strong growth in the cash distributions it pays to
unitholders, despite lowering its earnings outlook for the same period to
reflect less-favorable commodity prices.
The partnership continues to expect to pay unitholders a full-year 2012
distribution of $3.14 per unit, an 8 percent increase over 2011. As well, the
partnership confirmed it expects the midpoint of guidance for the full-year
distribution it pays unitholders in each 2013 and 2014 to increase by 9
percent – to $3.43 and $3.75, respectively.
Williams Partners expects its second-quarter distributable cash flow will be
significantly lower than the first-quarter’s results primarily because of an
unexpectedly sharp decline in natural-gas-liquids margins in May and June.
Additional factors in the change include normal seasonal increases in
maintenance capital expenditures; higher expenses at Midstream because of
maintenance accelerated during a third-party fractionator outage; somewhat
lower-than-expected volumes because of construction timing; costs associated
with recent acquisitions; and normal seasonal demand changes and maintenance
at Gas Pipeline. Higher fee-based revenues partially offset these factors.
The partnership estimates its second-quarter distributable cash flow will be
approximately $289 million, down from $475 million in the first quarter this
year. The partnership’s estimates of its second-quarter results are
preliminary and subject to change based on completion of its normal
quarter-end review process. As previously announced, the partnership plans to
report its finalized second-quarter financial results on Aug. 1.
Williams Partners’ revised guidance midpoints for full-year distributable cash
flow are $1.6 billion for 2012; $1.9 billion for 2013; and $2.3 billion for
2014. The partnership’s 2012 DCF guidance reflects the effect of significantly
lower than expected NGL prices and higher than normal maintenance capital
expenditures. The partnership’s projected 2014 distributable cash flow is 37
percent higher than its 2011 DCF of $1.7 billion.
Regarding commodity prices, the partnership referenced an NGL-to-crude-oil
price ratio that is approximately 40 percent below the 10-year average. Key
factors in that weakness are high propane inventories caused by the extremely
warm winter and the effect of the propane oversupply on ethane inventories and
pricing.
The partnership continues to expect the influence of NGL prices on its
performance to diminish over the next few years as it transitions to a
business mix that is largely fee-based. The partnership’s revised 2013 and
2014 performance expectations reflect that shift to greater fee-based
business; the benefit of projects coming into service; and some improvement
from current depressed NGL market prices as excess inventories are brought
into balance as a result of additions to North American capacity for
steam-cracking, propane dehydrogenation (PDH) and exports, as well as more
normal weather.
Williams Partners’ assumptions for certain energy commodity prices for 2012
through 2014 and the corresponding guidance for the partnership’s earnings and
capital expenditures are displayed in the following table:
Commodity
Price
Assumptions 2012 2013 2014
and Average
NGL Margins
As of July
23, 2012
Low Mid High Low Mid High Low Mid High
Natural Gas
($/MMBtu):
NYMEX $2.50 $2.50 $2.50 $2.75 $3.25 $3.75 $3.25 $3.75 $4.25
Rockies $2.30 $2.30 $2.30 $2.50 $3.00 $3.50 $3.05 $3.55 $4.05
San Juan $2.35 $2.35 $2.35 $2.60 $3.10 $3.60 $3.10 $3.60 $4.10
Oil / NGL:
Crude Oil -
WTI ($ per $85 $92.50 $100 $70 $85 $100 $70 $85 $100
barrel)
Crude to Gas 34.0x 37.0x 40.0x 25.5x 26.1x 26.7x 21.5x 22.5x 23.5x
Ratio
NGL to Crude
Oil 42% 41% 39% 54% 51% 49% 54% 51% 49%
Relationship
(1)
Average NGL
Margins ($ $0.65 $0.67 $0.68 $0.63 $0.70 $0.77 $0.56 $0.63 $0.71
per gallon)
Composite
Frac Spread $0.65 $0.70 $0.74 $0.68 $0.77 $0.87 $0.63 $0.73 $0.83
($ per
gallon) (2)
Williams
Partners
Guidance
Amounts are
in millions
except
coverage
ratio.
Low Mid High Low Mid High Low Mid High
DCF
attributable
to $1,475 $1,550 $1,625 $1,725 $1,900 $2,075 $2,080 $2,265 $2,450
partnership
ops. (3)
Total Cash
Distribution $1,537 $1,553 $1,569 $1,790 $1,849 $1,908 $2,071 $2,157 $2,242
(4)
Cash
Distribution 0.96x 1.00x 1.04x 0.96x 1.03x 1.09x 1.00x 1.05x 1.09x
Coverage
Ratio (3)
Adjusted
Segment
Profit (3):
Gas Pipeline $680 $700 $720 $700 $725 $750 $775 $800 $825
Midstream 950 1,025 1,100 1,100 1,275 1,450 1,350 1,550 1,750
Total
Adjusted $1,630 $1,725 $1,820 $1,800 $2,000 $2,200 $2,125 $2,350 $2,575
Segment
Profit
Adjusted
Segment
Profit +
DD&A:
Gas Pipeline $1,040 $1,070 $1,100 $1,070 $1,105 $1,140 $1,165 $1,200 $1,235
Midstream 1,315 1,400 1,485 1,520 1,705 1,890 1,820 2,030 2,240
Total
Adjusted $2,355 $2,470 $2,585 $2,590 $2,810 $3,030 $2,985 $3,230 $3,475
Segment
Profit + DD&A
Capital
Expenditures:
Maintenance $405 $440 $475 $350 $385 $420 $350 $385 $420
Growth 5,330 5,445 5,560 2,100 2,265 2,430 1,250 1,415 1,580
Total Capital $5,735 $5,885 $6,035 $2,450 $2,650 $2,850 $1,600 $1,800 $2,000
Expenditures
(1) This is calculated as the price of natural gas liquids as a percentage of
the price of crude oil on an equal volume basis.
(2) Composite frac spread is based on Henry Hub natural gas and Mont Belvieu
NGLs.
(3) Distributable Cash Flow, Cash Distribution Coverage Ratio and Adjusted
Segment Profit are non-GAAP measures. Reconciliations to the most relevant
measures included in GAAP are attached to this news release.
(4) The cash distributions in guidance are on an accrual basis and reflect an
approximate 8% (low), 9% (midpoint), and 10% (high) increase in quarterly
limited partner cash distributions annually through 2014.
The increases Williams Partners expects to make in its cash distributions are
subject to quarterly approval by the board of directors of the partnership’s
general partner.
In other news today, Williams Partners and Williams issued a news release
announcing they are pursuing an agreement for the partnership to acquire
Williams’ 83.3 percent interest and operatorship of the olefins-production
facility in Geismar, La.
The partnership expects that the addition of olefins production to its
business via this acquisition would create significant additional income,
reduce the partnership’s exposure to ethane margins and be accretive to
distributable cash flow, on a per-unit basis for the partnership’s
unitholders.
As contemplated, Williams Partners would fund the transaction largely with the
issuance of limited-partner units to Williams.
The transaction is subject to execution of an agreement between the two
parties, review and recommendation by the conflicts committee of the general
partner of Williams Partners, and approval of the two parties’ boards of
directors. As a result, the benefits of this planned transaction are not
included in current guidance.
Non-GAAP Measures
This press release includes certain financial measures - Distributable Cash
Flow, Cash Distribution Coverage Ratio, and Adjusted Segment Profit - that are
non-GAAP financial measures as defined under the rules of the SEC.
For Williams Partners L.P., Adjusted Segment Profit excludes items of income
or loss that we characterize as unrepresentative of our ongoing operations.
Management believes Adjusted Segment Profit provides investors meaningful
insight into Williams Partners L.P.'s results from ongoing operations.
For Williams Partners L.P. we define Distributable Cash Flow as net income
plus depreciation and amortization and cash distributions from our equity
investments less our earnings from our equity investments, distributions to
noncontrolling interests and maintenance capital expenditures. We also adjust
for payments and/or reimbursements under omnibus agreements with Williams and
certain other items.
For Williams Partners L.P. we also calculate the ratio of Distributable Cash
Flow to the total cash distributed (Cash Distribution Coverage Ratio). This
measure reflects the amount of Distributable Cash Flow relative to our cash
distribution. We have also provided this ratio calculated using the most
directly comparable GAAP measure, net income.
This press release is accompanied by a reconciliation of these non-GAAP
financial measures to their nearest GAAP financial measures. Management uses
these financial measures because they are accepted financial indicators used
by investors to compare company performance. In addition, management believes
that these measures provide investors an enhanced perspective of the operating
performance of the Partnership's assets and the cash that the business is
generating. Neither Adjusted Segment Profit nor Distributable Cash Flow are
intended to represent cash flows for the period, nor are they presented as an
alternative to net income or cash flow from operations. They should not be
considered in isolation or as substitutes for a measure of performance
prepared in accordance with United States generally accepted accounting
principles.
About Williams Partners L.P. (NYSE: WPZ)
Williams Partners L.P. is a leading diversified master limited partnership
focused on natural gas transportation; gathering, treating, and processing;
storage; natural gas liquid (NGL) fractionation; and oil transportation. The
partnership owns interests in three major interstate natural gas pipelines
that, combined, deliver 14 percent of the natural gas consumed in the United
States. The partnership’s gathering and processing assets include large-scale
operations in the U.S. Rocky Mountains and both onshore and offshore along the
Gulf of Mexico. Williams (NYSE: WMB) owns approximately 68 percent of Williams
Partners, including the general-partner interest. More information is
available at www.williamslp.com.
Williams Partners L.P. is a limited partnership formed by The Williams
Companies, Inc. (Williams). Our reports, filings, and other public
announcements may contain or incorporate by reference statements that do not
directly or exclusively relate to historical facts. Such statements are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. You typically can identify forward-looking statements
by various forms of words such as "anticipates," "believes," "seeks," "could,"
"may," "should," "continues," "estimates," "expects," "forecasts," "intends,"
"might," "goals," "objectives," "targets," "planned," "potential," "projects,"
"scheduled," "will," or other similar expressions. These forward-looking
statements are based on management's beliefs and assumptions and on
information currently available to management and include, among others,
statements regarding:
* Amounts and nature of future capital expenditures;
* Expansion and growth of our business and operations;
* Financial condition and liquidity;
* Business strategy;
* Cash flow from operations or results of operations;
* The levels of cash distributions to unitholders;
* Seasonality of certain business components; and
* Natural gas, natural gas liquids, and crude oil prices and demand.
Forward-looking statements are based on numerous assumptions, uncertainties
and risks that could cause future events or results to be materially different
from those stated or implied in this announcement. Many of the factors that
will determine these results are beyond our ability to control or predict.
Specific factors that could cause actual results to differ from results
contemplated by the forward-looking statements include, among others, the
following:
* Whether we have sufficient cash from operations to enable us to pay
current and expected levels of cash distributions following establishment
of cash reserves and payment of fees and expenses, including payments to
our general partner;
* Availability of supplies, market demand, volatility of prices, and the
availability and cost of capital;
* Inflation, interest rates and general economic conditions (including
future disruptions and volatility in the global credit markets and the
impact of these events on our customers and suppliers);
* The strength and financial resources of our competitors;
* Ability to acquire new businesses and assets and integrate those
operations and assets into our existing businesses, as well as expand our
facilities;
* Development of alternative energy sources;
* The impact of operational and development hazards;
* Costs of, changes in, or the results of laws, government regulations
(including safety and climate change regulation and changes in natural gas
production from exploration and production areas that we serve),
environmental liabilities, litigation and rate proceedings;
* Our allocated costs for defined benefit pension plans and other
postretirement benefit plans sponsored by our affiliates;
* Changes in maintenance and construction costs;
* Changes in the current geopolitical situation;
* Our exposure to the credit risk of our customers and counterparties;
* Risks related to strategy and financing, including restrictions stemming
from our debt agreements, future changes in our credit ratings and the
availability and cost of credit;
* Risks associated with future weather conditions;
* Acts of terrorism, including cybersecurity threats and related
disruptions; and
* Additional risks described in our filings with the Securities and Exchange
Commission (SEC).
Given the uncertainties and risk factors that could cause our actual results
to differ materially from those contained in any forward-looking statement, we
caution investors not to unduly rely on our forward-looking statements. We
disclaim any obligations to and do not intend to update the above list or to
announce publicly the result of any revisions to any of the forward-looking
statements to reflect future events or developments.
In addition to causing our actual results to differ, the factors listed above
may cause our intentions to change from those statements of intention set
forth in this announcement. Such changes in our intentions may also cause our
results to differ. We may change our intentions, at any time and without
notice, based upon changes in such factors, our assumptions, or otherwise.
Limited partner interests are inherently different from the capital stock of a
corporation, although many of the business risks to which we are subject are
similar to those that would be faced by a corporation engaged in a similar
business. Investors are urged to closely consider the disclosures and risk
factors in our annual report on Form 10-K filed with the SEC on February 28,
2012, and our quarterly reports on Form 10-Q available from our offices or
from our website.
Reconciliation of Non-GAAP "Distributable Cash Flow" to GAAP "Net income"
2011 2012
(Dollars in millions,
except coverage 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr 2nd Qtr* Year*
ratios)
Williams Partners L.P.
Reconciliation of
Non-GAAP
"Distributable Cash
Flow" to GAAP "Net
income"
Net income $ 307 $ 338 $ 342 $ 391 $ 1,378 $ 348 $ 193 $ 541
Depreciation and 150 154 155 152 611 156 167 323
amortization
Non-cash amortization
of debt issuance costs 5 5 3 4 17 4 3 7
included in interest
expense
Equity earnings from (25 ) (36 ) (40 ) (41 ) (142 ) (30 ) (27 ) (57 )
investments
Gain on sale of assets - - - - - - (6 ) (6 )
Acquisition-related - - - - - - 15 15
costs
Allocated
reorganization-related - - - - - - 7 7
costs
Net reimbursements
(payments) from/(to) 8 2 6 15 31 6 1 7
Williams under omnibus
agreements
Maintenance capital (34 ) (106 ) (148 ) (126 ) (414 ) (61 ) (110 ) (171 )
expenditures
Distributable Cash
Flow excluding equity 411 357 318 395 1,481 423 243 666
investments
Plus: Equity
investments cash 30 40 50 49 169 52 46 98
distributions to
Williams Partners L.P.
Distributable Cash $ 441 $ 397 $ 368 $ 444 $ 1,650 $ 475 $ 289 $ 764
Flow
Total cash $ 276 $ 286 $ 294 $ 311 $ 1,167 $ 363 $ 373 $ 736
distributed:
Coverage ratios:
Distributable Cash
Flow divided by Total 1.60 1.39 1.25 1.43 1.41 1.31 0.77 1.04
cash distributed
Net income divided by 1.11 1.18 1.16 1.26 1.18 0.96 0.52 0.74
Total cash distributed
* The estimates of second quarter results are preliminary and subject to change based on completion
of the company's normal quarter-end review process. As previously announced, the company plans to
report its final second-quarter financial results on August 1, 2012.
Segment profit guidance – reported to adjusted
Dollars in millions 2012 Guidance 2013 Guidance 2014 Guidance
Low Midpoint High Low Midpoint High Low Midpoint High
Reported segment
profit:
Midstream $ 932 $ 1,007 $ 1,082 $ 1,100 $ 1,275 $ 1,450 $ 1,350 $ 1,550 $ 1,750
Gas Pipeline 679 699 719 700 725 750 775 800 825
Total reported 1,611 1,706 1,801 1,800 2,000 2,200 2,125 2,350 2,575
segment profit
Adjustments:
Acquisition-related 24 24 24
costs
Gain on sale of (6 ) (6 ) (6 ) - - - - - -
certain assets
Total adjustments - 18 18 18 - - - - - -
Midstream
Loss related to
Eminence storage 1 1 1
facility leak
Total adjustments - 1 1 1 - - - - - -
Gas Pipeline
Total segment 19 19 19 - - - - - -
profit adjustments
Adjusted segment
profit:
Midstream 950 1,025 1,100 1,100 1,275 1,450 1,350 1,550 1,750
Gas Pipeline 680 700 720 700 725 750 775 800 825
Total adjusted $ 1,630 $ 1,725 $ 1,820 $ 1,800 $ 2,000 $ 2,200 $ 2,125 $ 2,350 $ 2,575
segment profit
Net income & distributable cash flow
Dollars in millions 2012 Guidance 2013 Guidance 2014 Guidance
Low Midpoint High Low Midpoint High Low Midpoint High
Net income $ 1,060 $ 1,150 $ 1,240 $ 1,230 $ 1,420 $ 1,610 $ 1,500 $ 1,700 $ 1,900
Depreciation and 725 745 765 790 810 830 860 880 900
amortization
Maintenance capital (405 ) (440 ) (475 ) (350 ) (385 ) (420 ) (350 ) (385 ) (420 )
expenditures
Gain on sale of assets (6 ) (6 ) (6 ) - - - - - -
Acquisition-related 24 24 24 - - - - - -
costs
Allocated
reorganization-related 7 7 7 - - - - - -
costs
Other / Rounding 70 70 70 55 55 55 70 70 70
Distributable Cash $ 1,475 $ 1,550 $ 1,625 $ 1,725 $ 1,900 $ 2,075 $ 2,080 $ 2,265 $ 2,450
Flow
Cash Distributions ^1 $ 1,537 $ 1,553 $ 1,569 $ 1,790 $ 1,849 $ 1,908 $ 2,071 $ 2,157 $ 2,242
Cash Distribution 0.96x 1.00x 1.04x 0.96x 1.03x 1.09x 1.00x 1.05x 1.09x
Coverage Ratio
Net Income / Cash 0.69x 0.74x 0.79x 0.69x 0.77x 0.84x 0.72x 0.79x 0.85x
Distributions
^1 Distributions in 2012 reflect quarterly increases of 1.0¢ in the low case, 1.5¢ in the midpoint case and 2.0¢ in the high case over
the 1Q 2012 distribution of $0.7775. In 2013-2014 distributions reflect quarterly increases of 1.5¢ in the low case, 2.0¢ in the
midpoint case, and 2.5¢ in the high case. Distributions are paid in the quarter following the period in which they are earned.
Contact:
Williams Partners
Media Relations:
Jeff Pounds, 918-573-3332
or
Investor Relations:
John Porter, 918-573-0797
or
Sharna Reingold, 918-573-2078
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