Williams Partners LP's CEO Discusses Q4 2012 Earnings Results - Earnings Call Transcript
February 21, 2013 1:55 PM ET
Williams Partners LP (WPZ)
Q4 2012 Earnings Call
February 21, 2013 09:30 am ET
John Porter – Head-Investor Relations
Alan Armstrong – Chairman, Chief Executive Officer
Don Chappel – Chief Financial Officer
Randy Newcomer – Senior Vice President
Frank Billings – SVP, Northeastern G&P Operations
Frank Ferazzi – SVP, Gas Pipelines
Christine Cho – Barclays
Holly Stewart – Howard Weil
Faisel Khan – Citi
Brad Olsen – Tudor Pickering
Ted Durbin – Goldman Sachs
Carl Kirst – BMO Capital
Craig Shere – Tuohy Brothers
Sharon Lui – Wells Fargo
TJ Schultz – RBC Capital Markets
Becca Followill – U.S. Capital Advisors
Selman Akyol – Stifel
Good day, everyone, and welcome to the Williams and Williams Partners Fourth Quarter 2012 Earnings Conference Call. Today’s conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. John Porter, Head of Investor Relations. Please go ahead, sir.
Thank you, Gwen. Good morning and welcome. As always we thank you for your interest in Williams and Williams Partners. Yesterday afternoon, we released our financial results and posted several important items on our websites, williams.com and williamslp.com.
These items include yesterday’s press releases with related schedules and the accompanying analyst packages, a presentation discussing these results, guidance updates, and growth opportunities with related audio commentary from our President and CEO, Alan Armstrong, and an update to our data books which contained detailed information regarding various aspects of our business.
This morning Alan will make a few comments and then we will open the discussion up for Q&A. Rory Miller is here from our Midstream business. Frank Ferazzi is here from our Gas Pipelines business. And our CFO, Don Chappel, is also available to respond to any questions.
In yesterday’s presentation and also in our data books, you will find an important disclaimer related to forward-looking statements. This disclaimer is important and integral to all of our remarks and you should review it. Also included in our presentation materials are various non-GAAP measures that have been reconciled back to Generally Accepted Accounting Principles. Those reconciliation schedules appear at the back of the presentation materials.
So with that, I’ll turn it over to Alan Armstrong.
Great. Thank you, John, and thanks to all of you on the phone and webcast who have joined us this morning. I certainly looking forward to your questions. Before we open up the phone lines, I want to take the opportunity to briefly touch on a few key themes for the Williams and Williams Partners investment story.
In short, we’re rewarding investors now with strong dividend and cash distribution growth through the guidance period and we are expanding our business to create continuing value growth in a very resilient future dividend and distribution growth.
First, let’s take a look at our fourth quarter performance. We turned in solid results in line with our third quarter guidance, despite a natural gas liquids margin environment that’s dropped even faster than we expected.
To give some scale to that drop and to the head winds we were facing, it’s important to understand that our fourth quarter NGL margins were down 46% from the prior year. Margins took another 8% hit from what we thought were low third quarter levels. And from a financial perspective, our fourth quarter NGL margins were off about $75 million compared just to the midpoint of the forecast that we shared at the third quarter results.
Much of this didn’t show up in the unit margin because we didn’t produce ethane when it was negative – in the negative margin territory. So, what you saw out there is a little bit higher unit margin than you might have expected, but at lower volumes as a result of that ethane rejection.
We’ve provided some detail in our slides regarding the positions that allowed us to overcome these very low NGL margins, but here are some of the highlights there. First, we successfully are growing our fee based revenues in this business for Williams Partners. In the Midstream segment, we generated fourth quarter fee based revenues 18% higher than a year ago. For both the Midstream and Gas Pipeline business, we generated fee based revenues that were up 5% from the third quarter to the fourth quarter.
And second, we continue to benefit from the natural hedge against ethane exposure that our olefins business creates. Williams Partners benefited in the last two months of 2012 with the acquisition of the olefins business and there is even greater benefit for WPZ ahead with the well-timed expansion of the Geismar facility expected in service later this year.
This combination supports our ability to reward investors with strong growth and cash dividends and cash distributions. We are reaffirming our guidance at midpoint to grow Williams’ cash dividend by some 20% with this year and – for both this year and next year. And for Williams Partners, we are reaffirming our guidance at midpoint to increase the cash distributions we pay unit holders by approximately 9% in both 2013 and 2014.
When we add our large platform of growth capital projects and the rapid growth in cash distributions we’re expecting from our recent investment in access midstream, what you have is a value creation engine that is powerful, durable, and resilient and will continue to grow for many years to come.
In our earnings announcement yesterday afternoon, you also saw that we are lowering our 2013 and 2014 earnings and cash flow guidance. We expect the growth in our fee-based business will partially offset the effect of sharply lower ethane and propane prices, and ethylene prices in 2014. And we will see Williams Partners benefiting from the late 2012 acquisition of Williams’ olefins business and a significant expansion in our Geismar facility in the fourth quarter. And I also would remind you that we have quite a bit of collared contracts that are expiring here in the first quarter of 2013 and of course those allow us to get even better exposed to the weak ethane price and continue our short position at Geismar there on ethane.
Our coverage at WPZ is certainly being impacted by the heavy load of investing about $12 billion in growth capital during the three-year period from 2012 through 2014. But we’re deploying that capital towards a vast array of great growth projects across our operating areas from the Marcellus and Utica Shales in Canada, to the Eastern Seaboard and the deep water Gulf of Mexico.
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