Williams Partners L.P. Reports Fourth-Quarter and Year-End 2010 Financial Results

TULSA, Okla., Feb. 17, 2011 /PRNewswire/ -- Williams Partners L.P. (NYSE: WPZ) today announced unaudited 2010 net income of $1,101 million, compared with 2009 net income of $1,036 million. Higher per-unit natural gas liquid (NGL) margins in the midstream business drove the higher net income for 2010.  Higher net interest expense of $163 million associated with new debt issuances made in conjunction with financing the assets acquired from Williams (NYSE: WMB) in February 2010 significantly reduced 2010 net income compared with the recast 2009 results.  

The results throughout this release have been recast to reflect the first-quarter and fourth-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. The recast 2009 results include the acquired assets' historical net income amounts, but do not include the incremental interest expense associated with financing the acquisitions.

Net income per common limited-partner unit for 2010 was $2.66, compared with $2.88 per unit for 2009. For 2009, Williams waived its incentive distribution rights (IDR), which increased net income per common limited-partner unit for 2009 by approximately 55 cents.

For fourth-quarter 2010, Williams Partners reported net income of $286 million, compared with $352 million for the same period in 2009.  The higher net interest expense of $54 million associated with the debt issuances noted above and the absence of a $40 million gain on the sale of the Cameron Meadows facility in fourth-quarter 2009 were the drivers of the lower net income in fourth-quarter 2010.  Higher NGL margins in fourth-quarter 2010 partially offset these items.

Net income per common limited partner unit for fourth-quarter 2010 was $0.76, compared with $0.99 per unit in fourth-quarter 2009.  Williams' waiver of IDRs in 2009 favorably impacted fourth-quarter 2009 net income per common limited partner unit by approximately 14 cents.

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

Asset Acquisitions Drive Substantial Increases in Distributable Cash Flow in 2010

For 2010, Williams Partners' distributable cash flow attributable to partnership operations was $1,164 million, compared with $191 million for 2009.  For fourth-quarter 2010, DCF attributable to partnership operations was $335 million, compared with $68 million for the same period in 2009.

The substantial increase in DCF attributable to partnership operations is primarily due to the growth of the partnership via the first-quarter 2010 asset acquisitions.

CEO Perspective

"This past year was a transformative one for Williams Partners, as the first-quarter asset acquisitions from Williams made us into one of the largest energy MLPs in the country," said Alan Armstrong, president and chief executive officer of the general partner of Williams Partners. 

"We delivered on the partnership's new growth potential throughout the year, as we increased our investment in Overland Pass and acquired additional gathering and processing assets in the Piceance Basin and the Marcellus Shale," Armstrong said.  "We also recently announced the Northeast Supply Link expansion on Transco, which will be anchored by the growing supply in the Marcellus.

"Major projects were placed in service as well, including expansion of our Echo Springs facility in Wyoming, and the Perdido Norte project in the Gulf of Mexico, which is expected to contribute significant cash flows in 2011 and beyond," Armstrong said.

Earnings, Capital Expenditure Guidance Updated; Cash Distribution Guidance Initiated

Williams Partners' updated assumptions for certain energy commodity prices for 2011-12 and the corresponding guidance for the company's earnings and capital expenditures are displayed in the following table.

The partnership is raising its 2011-12 earnings guidance based on higher expected per-unit NGL margins and benefits of growth capital.

The partnership is also initiating guidance on the quarterly cash distributions to its limited-partner and general-partner unitholders.  The partnership expects to increase distributions to its limited-partner unitholders by approximately 6 to 10 percent annually.  These increases will also drive increases in incentive distributions to Williams, the partnership's general partner.

Williams Partners has increased its quarterly distribution for the last four consecutive quarters following the major asset acquisitions in February 2010.  The planned distribution increases are supported by current growth projects and the expectation of continuing strong business performance.

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 2,800 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 13 billion cubic feet per day (Bcf/d).

Gas Pipeline reported segment profit of $637 million for 2010, compared with $635 million for 2009.

Higher transportation revenues from Transco expansion projects placed into service in 2009 and 2010, mostly offset by lower other service revenues and higher operating costs, drove the slight increase in segment profit for 2010.

The gas pipeline business has a significant portfolio of expansion projects to expand its services to key markets over the next several years.   A number of those projects are expected to be placed into service during 2011, including the Mobile Bay South II, Pascagoula expansion, and 85 North (phase two) expansions.

The Mobile Bay South II expansion project involves the addition of compression at Transco's Station 85 in Choctaw County, Ala., and modifications to existing facilities at Station 83 in Mobile County, Alabama.  The expansion will provide additional firm transportation service southbound on the Mobile Bay line from Station 85 to various delivery points, increasing capacity by 380 thousand dekatherms per day (Mdt/d).

The 85 North Expansion involves an expansion of Transco's existing natural gas transmission system from Station 85 in Choctaw County, Ala., to various delivery points as far north as North Carolina.  The first phase, which included 90 Mdt/d, was placed into service in July 2010.  The second phase, which will be placed into service this year, will add an additional 219 Mdt/d of capacity.

The Pascagoula expansion involves the construction of a new pipeline to be jointly owned with Florida Gas Transmission connecting the existing Mobile Bay Lateral to the outlet pipeline of a proposed LNG import terminal in Mississippi.  The partnership's share of the expansion's capacity will be 467 Mdt/d.

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 $937 million for 2010, compared with segment profit of $682 million for 2009.

The 37-percent increase in Midstream's segment profit for 2010 is primarily due to significantly higher per-unit NGL margins in 2010 compared with 2009.  Average per-unit NGL margins for 2010 were $0.57 per gallon – 46 percent higher than the average per-unit NGL margin of $0.39 per gallon for the same period in 2009.

Higher fee-based revenues also contributed to the improved results in 2010.  A gathering rate increase in the Piceance Basin associated with the assets acquired from Williams in November 2010, along with a full year of processing at Willow Creek, compared with start-up in 2009, were the key drivers of the higher fee-based revenues for the year.

The midstream business will continue work on several ongoing expansion projects in 2011. 

In conjunction with the December 2010 acquisition of Cabot Oil & Gas's gathering assets in Susquehanna County, Pa., $150 million has been added to Midstream's planned expansion capital to fund the 2011 construction phase of additional gathering assets in northeastern Pennsylvania to augment the acquired assets, including compression and dehydration. 

Construction is also expected to be completed this year on the 33-mile Springville natural gas gathering pipeline.  The Springville pipeline has been increased from a 20-inch to a 24-inch diameter pipeline in order to pursue future opportunities, and it will connect the recently acquired and new expansion gathering assets in northeastern Pennsylvania into the Transco pipeline.   

Rapid expansion of the Laurel Mountain gathering system, in which the partnership owns a 51 percent equity investment, is also under way.  This system will ultimately provide more than 1.5 Bcf/d of gathering capacity to producers in southwestern Pennsylvania.

The combination of the Laurel Mountain expansion and the expansions in northeastern Pennsylvania is expected to increase the partnership's total Marcellus Shale gathering capacity to 2.75 Bcf/d by 2015.

The partnership also plans to expand its gathering system infrastructure in the Piceance basin in 2011.

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 omnibus agreements 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 year-end 2010 results and 2011-12 outlook during a live webcast beginning at 11 a.m. EST 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 (888) 300-2318. International callers should dial (719) 325-2402. Replays of the year-end webcast in both streaming and downloadable podcast formats will be available for two weeks following the event at www.williamslp.com.

Form 10-K

The partnership plans to file its 2010 Form 10-K with the Securities and Exchange Commission (SEC) next week. 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 75 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 cash distributions 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 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 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 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.