Williams Partners Reports Year-End 2012 Financial Results

Williams Partners Reports Year-End 2012 Financial Results

  • 2012 Net Income is $1.23 Billion, $1.89 per Common Unit
  • Significantly Lower NGL Margins - Down 46% in 4Q - Drive Lower 2012 Net Income, DCF
  • Midstream Fee-based Business Continues Strong Growth; Up 18% in 4Q vs. Prior Year, Up 17% for Full Year
  • Reaffirming Strong Annual Cash Distribution Growth Guidance of 9% for 2013, 2014
  • Lowering 2013-14 Earnings Guidance; Expect Fee-Based Business Growth, Ethane-Consuming Gulf Olefins Business Will Partially Offset Effect of Sharply Lower Ethane, Propane Prices
  • Robust Demand for Infrastructure, Related Projects, Investments Drive Strong Growth

TULSA, Okla.--(BUSINESS WIRE)-- Williams Partners L.P. (NYS: WPZ) :

Summary Financial Information  Full Year  4Q
Amounts in millions, except per-unit and coverage ratio amounts. 2012    2011  2012    2011 
Net income$1,232 $1,511 $291 $412 
Net income per common L.P. unit$1.89 $3.69 $0.42 $1.05 
Distributable cash flow (DCF) (1)$1,681$1,786$425$466
Less: Pre-partnership DCF (2) (192) (136) (20) (22)
DCF attributable to partnership operations$1,489 $1,650 $405 $444 
Cash distribution coverage ratio (1)0.95x1.41x0.92x1.43x
(1) Distributable Cash Flow and Cash Distribution Coverage Ratio are non-GAAP measures. Reconciliations to the most relevant measures included in GAAP are attached to this news release.
(2) This amount represents DCF from the Gulf Olefins assets from January 2011 through its acquisition date in November 2012, since these periods were prior to the receipt of cash flows from the assets.

Williams Partners L.P. (NYS: WPZ) today announced unaudited 2012 net income of $1.23 billion, or $1.89 per common limited-partner unit, compared with 2011 net income of $1.51 billion, or $3.69 per common limited-partner unit.

For fourth-quarter 2012, Williams Partners reported net income of $291 million, or $0.42 per common limited-partner unit, compared with $412 million, or $1.05 per common limited-partner unit, for fourth-quarter 2011.

The decline in net income during the 2012 periods is due to a significant decline in natural gas liquid (NGL) margins, primarily driven by a sharp mid-year decline in NGL prices during 2012, which led to lower results in the partnership's midstream business. Higher expenses associated with developing businesses acquired during 2012, also contributed to the lower results for the year.

An increase in fee-based revenue partially offset the negative impacts of lower NGL prices and other factors. Fee-based revenue in Williams Partners' midstream business increased by more than 18 percent in fourth-quarter 2012 compared with fourth-quarter 2011. For the full year, fee-based revenue in the partnership's midstream business was up 17 percent over 2011.

There is a more detailed analysis of the partnership's businesses later in this news release. Prior-period results throughout this release have been recast to include the results of the olefins production facility acquired from Williams in November 2012.

Distributable Cash Flow

For 2012, Williams Partners generated $1.49 billion in distributable cash flow attributable to partnership operations, compared with $1.65 billion in DCF attributable to partnership operations in 2011.

For the fourth quarter of 2012, Williams Partners generated $405 million in DCF attributable to partnership operations, compared with $444 million for the fourth quarter of 2011.

The previously noted significant decline in NGL margins was the key driver of the decline in distributable cash flow. Higher fee-based revenue in the midstream business partially offset the lower NGL margins. Although fourth-quarter 2012 distributable cash flow declined compared with fourth-quarter 2011, it increased 28 percent sequentially compared with the third-quarter 2012 amount of $316 million.

Williams Partners recently announced that it increased its quarterly cash distribution to unitholders to $0.8275 per unit, an 8.5 percent increase over the year-ago amount. As planned, the partnership's previously strong cash distribution coverage enabled it to continue its cash distribution growth during a period of significantly unfavorable commodity prices. Also, the partnership has issued a significant amount of additional partnership units this year to finance numerous projects that are in the early stages of development.

CEO Perspective

Alan Armstrong, chief executive officer of Williams Partners' general partner, made the following comments:

"Our 2012 results were impacted by the significant decline in NGL margins during the year, but our fee-based business growth, including 18 percent growth in Midstream during the fourth quarter, helped mitigate our commodity exposure.

"We continue to rapidly grow our fee-based business. We are directing the vast majority of the $12 billion of our 2012-2014 growth capital to projects that serve to reduce the effect of NGL prices on our earnings. As well, our newly acquired and significantly expanding olefins business also has the effect of reducing our exposure to ethane prices.

"We expect to return our cash-distribution coverage to normal levels in 2014 as we bring into service this vast array of fee-based projects and benefit from the significant expansion of our olefins business.

"The need for reliable energy infrastructure is growing rapidly, as demand continues to grow for low-cost natural gas to serve winter heating loads and cleaner burning power generation, as well as the booming petrochemical and manufacturing sectors. We're well positioned to help meet these demands; our focus now is executing on the wide variety of growth opportunities across our businesses," Armstrong said.

2013-14 Guidance

Williams Partners is lowering its 2013-14 guidance for adjusted segment profit and distributable cash flow primarily to reflect sharply lower commodity margin assumptions.

Capital expenditures for 2013-14 are increasing, primarily due to increases of approximately $220 million in 2013 and $210 million in 2014 associated with a change in the forecasting presentation for Williams Partners' Gulfstar FPS and Constitution Pipeline projects. Previous capital expenditure guidance only reflected Williams Partners' 51-percent interest in Gulfstar and its 51-percent interest in Constitution. While Williams Partners' interests in each project are unchanged, the new guidance reflects Gulfstar and Constitution on a fully consolidated basis with our partners non-controlling interests reflected separately. The capital increases associated with this presentation change will be fully offset by capital contributions from the partners on each project.

Earlier this month, Williams Partners announced that Marubeni Corporation agreed to acquire a 49-percent interest in the Gulfstar project. Cabot Oil & Gas (NYS: COG) and Piedmont Natural Gas (NYS: PNY) own 25-percent and 24-percent interests in Constitution, respectively.

The partnership's current commodity price assumptions and the corresponding guidance for its earnings, distributable cash flow and capital expenditures are displayed in the following table:

Commodity Price Assumptions and Average NGL Margins  2013   2014
As of Feb. 20, 2013         
Commodity Price Assumptions
Ethane ($ per gallon)$0.23$0.33$0.43$0.30$0.40$0.50
Propane ($ per gallon)$0.81$0.96$1.11$1.05$1.20$1.35
Natural Gas - NYMEX ($/MMBtu)$3.00$3.50$4.00$3.50$4.00$4.50
Ethylene Spot ($ per pound)$0.46$0.56$0.66$0.46$0.56$0.66
Propylene Spot ($ per pound)$0.50$0.60$0.70$0.46$0.56$0.66
Crude Oil - WTI ($ per barrel)$75$90$105$75$90$105
NGL to Crude Oil Relationship (1)40%40%39%45%44%43%
Crack Spread ($ per pound) (2)$0.36$0.42$0.48$0.33$0.39$0.45
Composite Frac Spread ($ per gallon) (3)$0.47$0.56$0.65$0.52$0.61$0.71
Williams Partners Guidance               
Amounts are in millions except coverage ratio.
DCF attributable to partnership ops. (4)$1,625$1,800$1,975$2,270$2,475$2,680
Total Cash Distribution (5)$1,992$2,033$2,073$2,377$2,445$2,512
Cash Distribution Coverage Ratio (4)0.82x0.89x0.95x0.95x1.01x1.07x
Adjusted Segment Profit (4):
Gas Pipeline$725$750$775$775$800$825
Midstream 900  1,088  1,275  1,525  1,775  2,025 
Total Adjusted Segment Profit$1,625$1,838$2,050$2,300$2,575$2,850
Adjusted Segment Profit + DD&A:
Gas Pipeline$1,095$1,130$1,165$1,165$1,200$1,235
Midstream 1,315  1,513  1,710  2,045  2,305  2,565 
Total Adjusted Segment Profit + DD&A$2,410$2,643$2,875$3,210$3,505$3,800
Capital Expenditures:
Growth 3,235  3,400  3,565  1,600  1,765  1,930 
Total Capital Expenditures$3,550$3,750$3,950$1,950$2,150$2,350
(1) Calculated as the price of natural gas liquids as a percentage of the price of crude oil on an equal volume basis.
(2) Crack spread is based on Delivered U.S. Gulf Coast Ethylene and Mont Belvieu Ethane.
(3) Composite frac spread is based on Henry Hub natural gas and Mont Belvieu NGLs.
(4) 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.
(5) The cash distributions in guidance are on an accrual basis and reflect an approximate 7% (low), 9% (midpoint), and 11% (high) increase in quarterly limited partner cash distributions annually through 2014.

Business Segment Performance

For its year-end 2012 results, Williams Partners' operations are reported through two business segments, Gas Pipeline and Midstream Gas & Liquids.

Consolidated Segment ProfitFull Year4Q
Amounts in millions2012  20112012  2011
Gas Pipeline$677$673$195$176
Midstream Gas & Liquids 1,135 1,362 246 364
Total Segment Profit$1,812$2,035$441$540
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