Williams Partners L.P. Reports Third-Quarter 2010 Financial Results

TULSA, Okla., Oct. 28 /PRNewswire-FirstCall/ -- Williams Partners L.P. (NYSE: WPZ) today announced unaudited third-quarter 2010 net income of $226 million, compared with third-quarter 2009 net income of $279 million. Net income per common limited-partner unit for third-quarter 2010 was $0.63, compared with $1.04 per unit for third-quarter 2009.

The decline in net income in the third quarter reflected higher interest expense associated with the assets acquired from Williams (NYSE: WMB) in February 2010.  Higher per-unit natural gas liquid (NGL) margins partially offset the higher interest expense in the third quarter.

Year-to-date through Sept. 30, Williams Partners reported net income of $764 million, compared with $677 million for the same period in 2009.  Net income per common LP unit for the first nine months of the year was $1.87, compared with $1.88 per unit in the first nine months of 2009.  

Higher NGL margins in the midstream business, partially offset by the previously noted higher interest expense, drove the increase in net income for the year-to-date period.  

There is a more detailed discussion of the midstream and gas pipeline business results in the business segment performance section below.  

The results throughout this release have been recast to reflect the previously noted first-quarter 2010 asset acquisitions. In the recasting of the partnership's net income, all of the acquired assets' net income occurring prior to the closing date was allocated to Williams.

First-Quarter Asset Acquisitions Continue to Drive Substantial Increases in Distributable Cash Flow

For third-quarter 2010, Williams Partners' distributable cash flow attributable to partnership operations was $240 million, compared with $62 million for third-quarter 2009.  Year-to-date through Sept. 30, DCF attributable to partnership operations was $829 million, compared with $123 million for the same period in 2009.

The continued substantial increases in DCF attributable to partnership operations are due to the growth of the partnership via the first-quarter 2010 asset contribution transactions.

Partnership Agrees to Acquire Piceance Basin Gathering & Processing Assets from Williams

In a separate announcement today, Williams Partners announced it has agreed to acquire Williams' gathering and processing assets in Colorado's Piceance Basin for $782 million.  Williams Partners' total consideration for the assets will include $702 million in cash and $80 million in WPZ limited-partner and general-partner units.

The assets include the Parachute Plant Complex, three other treating facilities with a combined processing capacity of 1.2 billion cubic feet per day (Bcf/d), and a gathering system with approximately 150 miles of pipeline.   There are more than 3,300 wells connected to the gathering system, which includes pipelines ranging up to 30-inch trunk lines.  The transaction also includes a life-of-lease dedication from Williams' Exploration & Production.

Williams Partners expects the new assets will generate approximately $105 million in segment profit plus depletion, depreciation and amortization (DD&A) for its midstream business in 2011.  

CEO Perspective

"Williams Partners has delivered a strong year-to-date performance in both earnings and cash flow," said Steve Malcolm, president and chief executive officer of the general partner of Williams Partners.

"The acquisition of Williams' Piceance Basin gathering and processing assets is another ideal growth opportunity for the partnership," Malcolm said.  "It adds significant scale to our business in the Piceance Basin, along with additional fee-based revenues and cash flow."

Earnings, Capital Expenditure Guidance Updated

Williams Partners' updated assumptions for certain energy commodity prices for 2010-12 and the corresponding guidance for the company's earnings and capital expenditures are displayed in the following table.

The commodity price assumptions for 2010-12 are unchanged from guidance issued on Sept. 16, with the exception of NGL margins and NGL to Crude Oil Ratio.  Adjusted segment profit guidance for 2010 has been updated to reflected higher expected NGL margins.  Adjusted segment profit for 2011-12 has also been updated to reflect the effect of the Piceance drop-down transaction.  

Capital expenditure guidance for 2010-12 has been updated to reflect expected changes in the timing of certain 2010-11 capital spending, as well as the Piceance drop-down transaction and other expected new projects.

Business Segment Performance

Williams Partners' operations are reported through two business segments, Gas Pipeline and Midstream Gas & Liquids.

Gas Pipeline includes the partnership's interstate natural gas pipelines and pipeline joint venture investments.  Midstream Gas & Liquids includes the partnership's natural gas gathering, treating and processing business and is comprised of several wholly-owned and partially-owned subsidiaries.

Gas Pipeline

Williams Partners owns interests in three major interstate natural gas pipeline systems – Transco, Northwest Pipeline and Gulfstream. Transco and Northwest Pipeline have a combined total annual throughput of approximately 2,700 trillion British Thermal Units of natural gas, which is approximately 12 percent of the natural gas consumed in the United States. Combined peak-day delivery capacity is approximately 12 billion cubic feet per day.

Gas Pipeline reported segment profit of $161 million for third-quarter 2010, compared with $148 million for third-quarter 2009.

Higher transportation revenues from Transco expansion projects placed into service in 2009 and 2010, drove the improvement in the third-quarter results.  

For the first nine months of 2010, Gas Pipeline reported segment profit of $478 million, compared with $475 million for the first nine months of 2009.

Lower selling, general and administrative costs and higher transportation revenues from Transco expansion projects placed into service in 2009 and 2010 drove the slight improvement in the year-to-date period.  Lower other service revenues and higher operating costs mostly offset the lower SG&A costs.

The gas pipeline business has a significant portfolio of expansion projects to expand its services to key markets over the next several years.  

Midstream Gas & Liquids

Midstream provides natural gas gathering, treating, and processing; deepwater production handling and oil transportation; and NGL fractionation, storage and transportation services.

The business reported segment profit of $182 million for third-quarter 2010, compared with segment profit of $199 million for third-quarter 2009.

The decline in segment profit for the third quarter is primarily due to lower NGL equity sales volumes and slightly lower fee-based revenues, partially offset by higher per-unit NGL margins.   The 15-percent decline in NGL equity sales volumes for the third quarter was due to a number of temporary items.  Those items included lower gas deliveries in the Gulf region due to disruptions in third-party production unrelated to the drilling moratorium, an isolated sub-sea mechanical issue that reduced other Gulf region gas production flow, the impact of a force majeure shut-down of a third-party fractionator which limited plant production deliveries into Overland Pass Pipeline, and maintenance at the Echo Springs plant.  These unfavorable impacts were partially offset by a full quarter of production at Willow Creek, compared with start-up in 2009.  

Year-to-date through Sept. 30, Midstream reported segment profit of $625 million, compared with $409 million for the first nine months of 2009.

The 53 percent increase in year-to-date segment profit is due to significantly higher per-unit NGL margins in 2010 compared with 2009.  Average per-unit NGL margins for the first nine months of 2010 were $0.55 per gallon – 67 percent higher than the average per-unit NGL margin of $0.33 per gallon for the same period in 2009.

The midstream business continues to make progress on a number of organic expansion projects during 2010 and to pursue certain expansion and growth opportunities in its onshore and Gulf of Mexico businesses.

Definitions of Non-GAAP Financial 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 Securities and Exchange Commission.

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, amortization and accretion 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 an omnibus agreement with Williams and certain other items. Total Distributable Cash Flow is reduced by any amounts associated with operations, which occurred prior to our ownership of the underlying assets to arrive at Distributable Cash Flow attributable to partnership operations.

For Williams Partners L.P. we also calculate the ratio of Distributable Cash Flow attributable to partnership operations 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.

Today's Analyst Call

Management will discuss the third-quarter results and outlook during a live webcast beginning at 11 a.m. EDT today. Participants are encouraged to access the webcast and slides for viewing, downloading and printing at www.williamslp.com.

A limited number of phone lines also will be available at (877) 591-4953. International callers should dial (719) 325-4800. Replays of the third-quarter webcast in both streaming and downloadable podcast formats will be available for two weeks following the event at www.williamslp.com.

Form 10-Q

The partnership plans to file its Form 10-Q with the Securities and Exchange Commission today. The document will be available on both the SEC and Williams Partners web sites.

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 12 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 77 percent of Williams Partners, including the general-partner interest. More information is available at www.williamslp.com. Go to http://www.b2i.us/irpass.asp?BzID=1296&to=ea&s=0 or http://www.b2i.us/irpass.asp?BzID=630&to=ea&s=0 to join our email list.

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 segments; and
• Natural gas and natural gas liquids 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 maintain current levels of cash distributions or to pay the minimum quarterly distribution following establishment of cash reserves and payment of fees and expenses, including payments to our general partner;
• Availability of supplies (including the uncertainties inherent in assessing and estimating future natural gas reserves), 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;
• Development of alternative energy sources;
• The impact of operational and development hazards;
• Costs of, changes in, or the results of laws, government regulations (including proposed climate change legislation and/or potential additional regulation of drilling and completion of wells), 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 risks of our customers;
• 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; 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 report. 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 25, 2010, and our quarterly reports on Form 10-Q available from our offices or from our website at www.williamslp.com.

SOURCE Williams Partners L.P.

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