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Fee-Based Revenues Lift Williams, Offset Lower Liquids Prices
Williams, which controls a bevy of natural gas pipeline and midstream assets from the deepwater Gulf of Mexico (GOM) into Canada, saw its profits upended last year in part because of the big decline in liquids prices, especially for ethane and propane. However, CEO Alan Armstrong is looking toward the future based on “continued high demand for energy infrastructure” in North America, “from power generation to petrochemical manufacturing.”
The Tulsa-based operator reported net income of $149 million (23 cents/share) in 4Q2012, versus a net loss of $444 million (minus 74 cents) in the year-ago period. Net profits in 2012 rose year/year to $859 million ($1.37.share) from $376 million (63 cents).
“This past year was one of significant growth and change at Williams,” said the CEO. The company spun off WPX Energy, its exploration and production business, at the end of 2011 and “followed that up by seizing on a significant number of strategic growth opportunities. Our focus now is executing on our portfolio of great growth projects across of our operating areas — from the Marcellus and Utica shales, and Canada, to the deepwater Gulf of Mexico.”
Williams Partners LP (WPZ), which holds most of Williams’ midstream and pipeline assets on and offshore, reported net income of $291 million (42 cents/unit) in 4Q2012, compared with $412 million ($1.05) in 4Q2011. The earnings drop came on a “significant decline in natural gas liquids (NGL) margins, primarily driven by a sharp mid-year decline in NGL prices during 2012…” The partnership in 4Q2012 generated $405 million in distributed cash flow, up sequentially from $316 million but down from 4Q2011’s $444 million.
The annual dividend growth guidance remains at 20% for 2013 and in 2014 “in the face of sharply lower ethane and propane prices,” said Armstrong. “We’re basing our strong dividend growth outlook on the continued rapid growth of our fee-based business and the strong mitigating effect of the Geismar ethylene complex…There continues to be significant demand for energy infrastructure to connect North America’s prolific shale plays to growing markets.”
WPZ’s fee-based revenue partially offset lower liquids prices, which increased in 4Q2012 by more than 18% from a year earlier. Annual fee-based revenue rose 17% from 2011.
“Our 2012 results were impacted by the significant decline in NGL margins during the year, but our fee-based business growth, including 18% growth in midstream during the fourth quarter, helped mitigate our commodity exposure,” said Armstrong. Williams owns about 70% of the partnership. “We are directing the vast majority of the $12 billion of our 2012-2014 growth capital to projects that serve to reduce the effect of NGL prices on our earnings. As well, our newly acquired and significantly expanding olefins business also has the effect of reducing our exposure to ethane prices.”
Cash distributions are forecast to return to “normal” levels in 2014 “as we bring into service this vast array of fee-based projects and benefit from the significant expansion of our olefins business. The need for reliable energy infrastructure is growing rapidly, as demand continues to grow for low-cost natural gas to serve winter heating loads and cleaner burning power generation, as well as the booming petrochemical and manufacturing sectors.”
Williams and the partnership reduced 2013-2014 earnings guidance “primarily to reflect sharply lower commodity margin assumptions.” For one thing, capital expenditures are going to be higher in 2013 and in 2014 because of increased costs for two projects, the Gulfstar Floating Production System for the Gulf of Mexico, and Constitution Pipeline, which is to transport gas from the Marcellus Shale. Earlier this month Marubeni Corp. acquired the minority stake in Gulfstar; WPZ owns 51% (see Daily GPI, Feb. 7). WPZ also is majority owner of Constitution with a 51% stake; Cabot Oil & Gas Corp. has a 25% stake and Piedmont Natural Gas holds a 24% interest.
WPZ, which owns the Transcontinental Gas Pipe Line and Northwest Pipeline, and which has a 50% stake in Gulfstream, said its gas pipeline segment in 4Q2012 earned $195 million, versus $176 million in 4Q2011. The partnership’s midstream business unit generated profits of $246 million, down from $364 million in 4Q2011. “Significantly lower NGL prices, partially offset by lower natural gas prices,” were to blame.
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