With an expectation of "strong" natural gas liquids (NGL) and olefin margins in its U.S. and Canadian midstream businesses, Williams late Wednesday increased its earnings guidance by 11% for 2011 and 2012.
The Tulsa-based company reported net profit of $321 million (54 cents/share) in 1Q2011, versus a net loss of $193 million (minus 33 cents) a year ago. The improvement came from the absence of pretax charges related to the company's restructuring, which created U.S. pipeline and midstream unit Williams Partners LP. Improved results in the Canadian midstream unit, as well as the partnership, were dragged down by lower gas prices, which impacted results in the exploration and production (E&P) segment.
"We're off to a good start this year, and we're expecting an even stronger performance for the remainder of 2011 and 2012," said CEO Alan Armstrong. "We've increased our earnings guidance 11% for both years, as we expect strong natural gas liquids and olefin margins in our midstream businesses. We continue to invest in and bring more value-adding natural gas and NGL infrastructure projects online.
"With abundant supplies in the new shale plays and growing demand from natural gas-fired electrical generation, the need for natural gas infrastructure will continue to grow. When you combine our existing assets with $4.8 billion in growth capital planned for 2011 and 2012, Williams stands to play a major role in providing the infrastructure that will bring the vast natural gas and NGL supplies in North America to market."
During a conference call on Thursday Armstrong provided an update on Williams' plans to split the company and create a separate E&P company. Shareholders approved the plan in February (see Daily GPI, Feb. 17).
"We, of course, cannot say much at all about the spinoff of our E&P segment, to be known as WPX Energy," Armstrong said, noting that the company has not yet received regulatory approvals.
"I can...speak to the positive impact that we expect to see at WMB...[which] is going to be one of the top [E&P] companies in the nation and it is going to be better positioned than any that I'm aware of in delivering reliable growing dividends."
Profits rose slightly at Williams Partners, which reported net income of $437 million, versus $424 in the year-ago period. Improved results in the gas pipeline business, as well as higher fee-based revenues and higher per-unit NGL margins in the midstream business, drove a slight improvement, despite higher operating expenses and lower NGL equity volumes. The lower NGL equity volumes followed the change of a major contract in the Gulf Coast region from keep-whole to percent-of-liquids processing, it said.
Meanwhile, the E&P segment reported that its profits plunged year/year to $51 million from $153 million. A 7% decline in averaged realized prices for domestic gas production led to the decline, Williams said. However, "the lower realized average price was partially offset by a 6% increase in production volumes sold during the quarter."
U.S. exploration is concentrated onshore, and Williams also operates overseas. In its U.S. portfolio, average daily production jumped 6% year/year to 1,155 MMcfe/d from 1,091 MMcfe/d, but was down 1% from the final three months of 2010.
The biggest production gains were in the Piceance Basin, where output jumped 12% to 706 MMcfe/d from 632 MMcfe/d. The Powder River Basin's output was down 1% to 225 MMcfe/d from 238 MMcfe/d. And in "other" U.S. basins output rose slightly by 1% to 224 MMcfe/d from 221 MMcfe/d.
"The slight decline in average daily production from 4Q2010 to 1Q2011 was primarily due to severe winter weather, which is typical for the first quarter," the company said. "The winter weather reduced first quarter 2011 production volumes by approximately 25 MMcfe/d." Williams expects average annual daily production to increase by 9% in 2011 and 11% in 2012 at guidance midpoints.
Bakken Shale activity also continues to expand, the company said. Three rigs now are operating in the play; two more are to be added during the next six months. Current net production in the oily Bakken is about 4,000 b/d, which is "roughly double the first quarter 2011 average."
Solid gains also were reported in Williams' newly named midstream Canada and olefins segment, which saw profits up year/year to $74 million from $20 million.
"The significant increase in midstream Canada and olefins' segment profit is due to higher per-unit margins on Geismar ethylene, Canadian propane and propylene, and products produced from Canadian butylene/butane mix product," said the company. "Production volumes in Canada were also higher primarily due to the absence of the 2010 operational issues at a third-party facility that provides feedstock to our Canadian facility."
Commodity gas price assumptions in 2011 for the New York Mercantile Exchange are $3.40-5.10/Mcf, and $4.00-6.00 in 2012. In the Rockies, gas prices are expected to average $3.10-4.60/Mcf in 2011 and $3.65-5.45 in 2012. The average San Juan/Midcontinent gas prices this year are forecast to be $3.20-4.80, and in 2012, the average is $3.70-5.60. Oil prices are forecast to average about $80-95/bbl this year and in 2012. Average NGL margins per gallon are expected to be 64-88 cents in 2011 and 56-90 cents in 2012.
Following through with its previously announced plan, Williams recently announced a 60% hike in its quarterly dividend. The company continues to expect an additional 10-15% increase for the quarterly dividends it will pay beginning in June 2012.
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