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Williams Slammed by Geismar Delay, Lower NGL Margins

Williams and its pipeline unit reported that earnings in the second quarter fell 28% from a year ago amid declining natural gas liquids (NGL) and olefin margins, and the impact from yet another big delay in restarting its major plant in Geismar, LA.

Two people were killed and dozens were injured last year following a fire at the Williams Olefins LLC facility (see Daily GPI, June 25, 2013). Federal regulators cited Williams in December for six process safety management violations (see Daily GPI, Dec. 12, 2013).

Following two other processing incidents after Geismar, Williams in May brought in an independent safety auditor (see Daily GPI, May 15). Geismar had been set to restart in June, in conjunction with an expansion (see Daily GPI, May 2). However, more issues were discovered during the safety audit, CEO Alan Armstrong said Thursday during a conference call.

The start-up now tentatively is set for October.

Rebuilding and expanding the olefins plant "is substantially complete, but due to more time required to modify existing safety systems, we now expect full production and ethylene sales by the fourth quarter," Armstrong told analysts. "Geismar was in line with our plan, and the rebuild was completed last week. The final efforts on the expansion are to be done next week." The engineering and construction team was "wrapping up and moving out...

"Unfortunately, we were very disappointed with...a new concern at Geismar that requires an enhancement to the safety system," which pushed the delay for first sales. "It's an out of normal situation...a big issue."

Senior Vice President John Dearborn, who heads natural gas liquids and petrochemical services, elaborated on the concerns.

"To put it into context," he said, the overall facility has more than 750 pressure safety valves, which are tested on a regular basis to determine overpressure scenarios, how the valves are expected to control overpressure circumstances.

Before the June 2013 tragedy, and following the incident, "we were doing overpressure studies" throughout the facility "in a prioritized, careful way," Dearborn said. "We have to be deliberate, disciplined..and the work had progressed extremely well. The valves would get studied, and if we see...that a valve is fine, no further work is needed."

Because the valves study was prioritized, several valves were "left to the end of the study," Dearborn said. "In early July, as the study was finishing up, we came to learn [about] a particular scenario that required mitigation. As we came to learn about that, the team considered several strategies that potentially could have worked...

"We are determined the find the best solution to install several new [valves]...several is about 12 being installed," and several sections of pipe also are being replaced.

"As it happens, that full impact of this new work on our schedule did not become known until earlier this week," said Dearborn. "We're taking this as an extra precaution..."

Reflecting about what happened at the time of the incident, he said Geismar "went down in an unusual and hard way...we had to take unusual precautions, and we are going through certain procedures...that could be some potential risks related to some of the equipment.

"Secondarily, there's always a concern about the restart of a plant, especially when the shutdown is extended," to ensure systems as designed are working as they should."

Asked if he thought there could be additional delays, Dearborn said he knew "nothing today that says we should have unusual worries on this start-up." It's going to be done "with an abundance of caution...It's appropriate to note that the start-up is not risk-free when we are through with the next installation of relief valves."

CFO Don Chappel addressed the insurance issues related to Geismar. "Most of the facts are very well know. We'll continue to update our claim as we move through start-up...We've retained some expert consultants doing studies to support our claim," and "we plan to represent those studies to insurers in the fall. We hope that would then start a round of settlement discussions."

Williams Partners LP, which owns the Geismar facility, lowered earnings and cash flow guidance for 2014, and revised capital spending plans as a result of delays in Geismar's expected in-service date. First ethylene production and sales are expected to begin in October, pending any other start-up issues. The rebuild project capital is expected to increase by around $20 million as a result of the safety modifications.

"The insurers continue to evaluate Williams Partners' claims and have recently raised questions around key assumptions involving our business-interruption claim," the operator said. "As a result, the insurers have elected to make a partial payment pending further assessment of these issues. Williams Partners continues to work with insurers in support of all claims, as submitted, and is vigorously pursuing collection of the remaining $275 million insurance limits."

Williams and the partnership "are certainly coming out of this much stronger than when we went into it both from an operational focus and on reliability," Armstrong added. "We have tried hard to improve the older plant, and we want to make sure the learnings are built into the new plant as well."

Williams has a broad array of busy midstream and pipeline projects that stretch from the deepwater Gulf of Mexico into Canada. However, profits in 2Q2014 fell 28% year/year to $103 million (15 cents/share) from year-ago earnings of $142 million (21 cents). The partnership's profits dropped to $232 million (11 cents/share) from $271 million (31 cents).

Adjusted quarterly profits for Williams were $742 million, versus $644 million in 2Q2013, with the increase driven by a $100 million rise in adjusted segment profits for its majority-owned partnership.

Williams has increased its capital expenditure budget for 2014 through 2016 by $2.55 billion to reflect the expected consolidation of Access Midstream Partners LP, which it now half-owns. It has made a bid to acquire the remaining stakes, a proposal now being reviewed by Williams Partners and Access management, Armstrong said.

"Additionally, capital expenditures have been decreased by approximately $565 million to reflect a shift in capital spending to periods beyond 2016 for developing Canadian projects in the Williams NGL & Petchem Services segment. Capital spending for Williams Partners increased in 2014 as a result of the Geismar expansion project.

ISSN © 2577-9877 | ISSN © 1532-1231

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