- Continued Solid Financial Performance; Increasing Fee-Based Revenue; Cost Reductions
- 3Q 2016 Cash Flow from Operations of $676 million, Up $71 million or 12%
- 3Q 2016 Net Income of $326 million, Up $520 million
- 3Q 2016 Adjusted EBITDA of $1.189 billion, Up $89 million or 8%
- Coverage Ratio of 1.08x Driven by Distributable Cash Flow of $795 million, Up $41 million or 5%
- Revised 2017 Capital Expenditure Guidance Related Primarily to Atlantic Sunrise Project Timing
|Summary Financial Information||3Q||YTD|
Amounts in millions, except per-unit amounts. Per unit amounts
|Cash Flow from Operations||$676||$605||$2,341||$2,098|
|Net income (loss)||$326||($194||)||$286||$195|
|Net income (loss) per common unit||$0.42||($0.32||)||($0.32||)||($0.50||)|
|Non-GAAP Measures (1)|
|DCF attributable to partnership operations||$795||$754||$2,271||$2,101|
|Cash distribution coverage ratio||1.08x||1.04x||1.04x||0.97x|
Adjusted EBITDA, distributable cash flow (DCF) and cash distribution coverage ratio are non-GAAP measures. Reconciliations to the most relevant measures included in GAAP are attached to this news release.
Third-Quarter 2016 Financial Results
Williams Partners reported third-quarter 2016 unaudited net income of $326 million, compared to a $194 million net loss from third-quarter 2015. The favorable change was driven by the absence of $461 million of impairments of equity-method investments recognized in 2015. The improvement also reflected higher olefins margins at our Geismar plant, lower operating and maintenance (O&M) and selling, general and administrative (SG&A) expenses, and higher service revenues associated with expansion projects, partially offset by a $32 million additional loss associated with the completion of the sale of our Canadian operations and expensed project development costs.
Year-to-date, Williams Partners reported unaudited net income of $286 million, a $91 million increase over the same time period in 2015. The favorable change was driven by lower impairments of equity-method investments, higher service revenues, an increase in olefins margins associated with our Geismar plant, decreases in O&M and SG&A expenses, and higher equity earnings. These favorable changes were partially offset by increased property-impairment charges and the additional loss on sale associated with our Canadian operations, the absence of $126 million of insurance recoveries, and higher interest incurred.
Williams Partners reported third-quarter 2016 Adjusted EBITDA of $1.189 billion, an $89 million increase over third-quarter 2015. The increase is due primarily to $37 million higher fee-based revenues, $33 million higher olefins margins and $21 million lower O&M and SG&A expenses.
Year-to-date, Williams Partners reported Adjusted EBITDA of $3.314 billion, an increase of $289 million over the same nine-month reporting period in 2015. The increase is due primarily to $108 million of higher olefins margins, $99 million of higher fee-based revenues, $83 million of lower O&M and SG&A expenses and $50 million of higher proportional EBITDA from joint ventures. Partially offsetting these increases was a $19 million unfavorable change in foreign currency exchange gains and losses related to our former Canadian operations divested in September 2016.
Distributable Cash Flow and Distributions
For third-quarter 2016, Williams Partners generated $795 million in distributable cash flow (DCF) attributable to partnership operations, compared with $754 million in DCF attributable to partnership operations for the same period last year. The $41 million increase in DCF for the quarter was driven by an $89 million increase in Adjusted EBITDA, partially offset by $25 million higher interest expense. For third-quarter 2016, the cash distribution coverage was 1.08x.
Year-to-date, Williams Partners generated $2.271 billion in DCF, an increase of $170 million over the same period in 2015. The increase was due to a $289 million increase in Adjusted EBITDA partially offset by $100 million higher interest expense. Year-to-date, the cash distribution coverage was 1.04x.
Williams Partners recently announced a regular quarterly cash distribution of $0.85 per unit for its common unitholders payable on Nov. 14, 2016 to unitholders of record at the close of business on Nov. 4, 2016.
In August 2016, Williams reinvested $250 million via a private placement to purchase WPZ common units pursuant to its previously announced plans.
Alan Armstrong, chief executive officer of Williams Partners’ general partner, made the following comments:
“With Adjusted EBITDA growth across all five of the partnership’s operating areas and increased distributable cash flow achieved by Williams Partners, our strong third-quarter results highlighted once again the effectiveness of our strategy and how well-positioned we are to capture natural gas demand growth now and in the future.
“Our recent accomplishments reflect disciplined execution against our business plan. The new Kodiak, Gunflint and Rock Springs facilities all contributed to our growth in the third quarter. Despite the expanding number of major projects recently placed in-service, we reduced expenses on a year-to-date basis. We also completed win-win contract renegotiations with our customer Chesapeake and completed the sale of our Canadian businesses as we continue to take decisive actions to position our company for predictable growth.
“Our future growth is also visible in the number of projects now under construction. After receiving the necessary permits to begin construction, we began work in the third quarter on Dalton, Virginia Southside II and Phase 1 of Hillabee. Construction on our New York Bay Expansion project began this month while construction also continues on our Gulf Trace project. We are aiming to place all of these Transco-expansion projects into service next year.”
Business Segment Results
|Williams Partners||Modified and Adjusted EBITDA|
|Amounts in millions||3Q 2016||3Q 2016||3Q 2015||3Q 2015||YTD 2016||YTD 2015|
|Atlantic-Gulf||$416||$11||$427||$414||$ –||$414||$1,149||$42||$1,191||$1,138||$ –||$1,138|
|NGL & Petchem Services||104||32||136||85||–||85||(104||)||377||273||249||(124||)||125|
|Definitions of modified EBITDA and adjusted EBITDA and schedules reconciling these measures to net income are included in this news release.|
Atlantic-Gulf operating area includes the Transco interstate gas pipeline and 41 percent interest in Constitution interstate gas pipeline development project, which Williams Partners consolidates. The segment also includes the partnership’s significant natural gas gathering and processing and crude oil production and handling and transportation in the Gulf Coast region. These operations include a 51 percent consolidated interest in Gulfstar One, a 50 percent equity method interest in Gulfstream and a 60 percent equity-method interest in the Discovery pipeline and processing system.
Atlantic-Gulf reported Modified EBITDA of $416 million for third-quarter 2016, compared with $414 million for third-quarter 2015. Adjusted EBITDA increased by $13 million to $427 million for the same time period. The increase in Modified EBITDA is due primarily to $31 million higher fee-based revenues from both offshore gathering and processing operations (including the new Gunflint and Kodiak facilities) as well as Transco’s new expansion projects. Substantially offsetting the higher fee-based revenues were $20 million in higher O&M expenses primarily related to pipeline safety testing activities as well as expensed project development costs.
Year-to-date, Atlantic-Gulf reported Modified EBITDA of $1.149 billion, an increase of $11 million over the same time period in 2015. Adjusted EBITDA increased $53 million to $1.191 billion. The increase in Modified EBITDA was due primarily to $27 million higher fee-based revenues from both Transco’s new expansion projects as well as offshore gathering and processing operations (including the new Gunflint and Kodiak facilities) and $25 million higher proportional EBITDA from Discovery due to increased contributions from Keathley Canyon Connector. Modified EBITDA was also unfavorably impacted by potential rate refunds associated with litigation, severance-related costs, and project development costs, all of which are excluded from Adjusted EBITDA.
The Central operating area includes operations that were previously part of the former Access Midstream segment located in Louisiana, Texas, Arkansas and Oklahoma. These operations became the Central operating area effective Jan. 1, 2016 and prior-period segment disclosures have been recast for this change. Central provides gathering, treating and compression services to producers under long-term, fee-based contracts. The segment also includes a non-operated 50 percent interest in the Delaware Basin gas gathering system in the Mid-Continent region.
The Central operating area reported Modified EBITDA of $176 million for third-quarter 2016, an increase of $13 million from third-quarter 2015. Adjusted EBITDA increased by $16 million to $246 million. The increase is due primarily to $20 million lower O&M and SG&A expenses partially offset by lower fee-based revenues.
Year-to-date, the Central operating area reported Modified EBITDA of $467 million, an increase of $11 million from the same nine-month reporting period in 2015. Adjusted EBITDA increased $38 million to $718 million. The increase in Modified EBITDA was due primarily to $63 million of lower O&M and SG&A expenses due to cost reduction efforts and the absence of certain merger and transition costs in the prior year partially offset by lower fee-based revenues and a $48 million impairment charge in the second quarter of 2016 related to a gathering system. Adjusted EBITDA excludes the impairment charge and benefits from the absence of prior-year merger and transition costs, as well as estimated minimum volume commitments.
NGL & Petchem Services
NGL & Petchem Services operating area includes an 88.5 percent undivided ownership interest in an olefins production facility in Geismar, Louisiana, along with a refinery grade propylene splitter and pipelines in the Gulf Coast region. This segment also includes the partnership’s energy commodities marketing business, an NGL fractionator and storage facilities near Conway, Kan. and a 50 percent equity-method interest in Overland Pass Pipeline. Prior to the sale of all of our Canadian-based assets effective Sept. 23, 2016, this segment included midstream operations in Alberta, Canada, including an oil sands offgas processing plant near Fort McMurray, 261 miles of NGL and olefins pipelines and an NGL/olefins fractionation facility at Redwater.
NGL & Petchem Services operating area reported Modified EBITDA of $104 million for third-quarter 2016, compared with $85 million for third-quarter 2015. Adjusted EBITDA increased by $51 million to $136 million. The $19 million increase in Modified EBITDA was due primarily to $33 million higher olefins margins and $8 million higher fee-based revenues. Geismar olefins margins for third-quarter 2016 reflected enhanced operational production levels and improved ethylene prices. Partially offsetting these increases was a $32 million additional loss associated with the completion of the sale of Canadian operations, which is excluded from Adjusted EBITDA.
Year-to-date, NGL & Petchem Services operating area reported Modified EBITDA of ($104) million compared with $249 million during the same time period in 2015. Adjusted EBITDA increased $148 million to $273 million. The decrease in Modified EBITDA was due primarily to a second quarter 2016 non-cash impairment charge of $341 million associated with our former Canadian operations, the additional loss associated with the sale, and the absence of $126 million business interruption proceeds. Partially offsetting these unfavorable items were $108 million favorable olefins margins at Geismar and $38 million favorable fee-based revenues due primarily to new fees associated with Williams’ Canadian offgas processing plant that came online in first quarter 2016. Adjusted EBITDA excludes the impairment charge, additional loss on sale and insurance proceeds.
Northeast G&P operating area includes the Susquehanna Supply Hub, Ohio Valley Midstream, Marcellus South, Bradford and Utica midstream gathering and processing operations as well as its 69-percent equity investment in Laurel Mountain Midstream, and its 58.4 percent equity investment in Caiman Energy II. Caiman Energy II owns a 50 percent interest in Blue Racer Midstream. The Marcellus South, Bradford and Utica midstream gathering and processing operations that were previously within the former Access Midstream segment became part of Northeast G&P effective Jan. 1, 2016 and prior period segment disclosures have been recast for this change.
Northeast G&P operating area reported Modified EBITDA of $208 million for third-quarter 2016, compared with $189 million for third-quarter 2015. Adjusted EBITDA increased $6 million to $214 million. The $19 million increase in Modified EBITDA was due primarily to $14 million of higher fee-based revenues.
Year-to-date, Northeast G&P operating area reported Modified EBITDA of $638 million, an increase of $81 million over the same period in 2015. Adjusted EBITDA increased $40 million to $649 million. The increase in Modified EBITDA is due primarily to higher fee-based revenues, lower O&M expenses, increased proportional Modified EBITDA of equity-method investments and the absence of certain 2015 impairment charges. Adjusted EBITDA excludes the prior year impairment charges.
West operating area includes the partnership’s Northwest Pipeline interstate gas pipeline system, as well as gathering, processing and treating operations in Wyoming, the Piceance Basin and the Four Corners area.
West operating area reported Modified EBITDA of $166 million for third-quarter 2016, compared with $169 million for third-quarter 2015. Adjusted EBITDA of $166 million is $5 million higher than the same period in 2015. The $3 million decrease in Modified EBITDA was due primarily to the absence of an $8 million insurance settlement recorded in 2015 and lower fee-based revenues, substantially offset by $7 million lower O&M and SG&A expenses. Adjusted EBITDA excludes the effect of the 2015 insurance settlement.
Year-to-date, the West operating area reported Modified EBITDA of $479 million compared with $480 million over the same period in 2015. Adjusted EBITDA of $483 million is $10 million higher than the same period in 2015 due primarily to lower O&M and SG&A expenses.
Revised 2017 Growth Capital Guidance Related Primarily to Atlantic Sunrise Project Timing
Williams Partners is revising its 2017 growth capital guidance amounts due primarily to the shift in Transco and related Northeast G&P growth spending caused by the revised Atlantic Sunrise in-service date, as well as new projects and other changes. As discussed in its press release dated Oct. 28, 2016, Williams Partners expects partial Atlantic Sunrise service to begin during the second half of 2017 and is now targeting full in-service during mid-2018. Consistent with prior financial practice, Williams Partners’ financial plan further risks these project cash flows by approximately six months. The following guidance range represents both the targeted in-service date and the further risked in-service date: total 2017 growth capital and investment expenditures are expected to be between $2.1 billion and $2.8 billion, including total 2017 growth capital for Transco, which is expected to be between $1.4 billion and $1.9 billion.
Third-Quarter 2016 Materials to be Posted Shortly; Q&A Webcast Scheduled for This Morning
Williams Partners’ third-quarter 2016 financial results package will be posted shortly at www.williams.com. The package will include the data book and analyst package.
Williams and Williams Partners plan to jointly host a Q&A live webcast today, Oct. 31, at 9:30 a.m. EDT. A limited number of phone lines will be available at (888) 364-3105. International callers should dial (719) 8325-2228. The conference ID is 6961753. A link to the webcast, as well as replays of the webcast, will be available for two weeks following the event at www.williams.com.
The company plans to file its third-quarter 2016 Form 10-Q with the Securities and Exchange Commission this week. Once filed, the document will be available on both the SEC and Williams websites.
Definitions of Non-GAAP Measures
This news release may include certain financial measures – adjusted EBITDA, distributable cash flow and cash distribution coverage ratio – that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission.
Our segment performance measure, modified EBITDA, is defined as net income (loss) before income tax expense, net interest expense, equity earnings from equity-method investments, other net investing income, impairments of equity investments and goodwill, depreciation and amortization expense, and accretion expense associated with asset retirement obligations for nonregulated operations. We also add our proportional ownership share (based on ownership interest) of modified EBITDA of equity-method investments.
Adjusted EBITDA further excludes items of income or loss that we characterize as unrepresentative of our ongoing operations and may include assumed business interruption insurance related to the Geismar plant. Management believes these measures provide investors meaningful insight into results from ongoing operations.
We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures, cash portion of interest expense, income attributable to noncontrolling interests and cash income taxes, plus WPZ restricted stock unit non-cash compensation expense and certain other adjustments that management believes affects the comparability of results. Adjustments for maintenance capital expenditures and cash portion of interest expense include our proportionate share of these items of our equity-method investments.
We also calculate the ratio of distributable cash flow 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 using the most directly comparable GAAP measure, net income (loss).
This news 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 EBITDA 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.
About Williams Partners
Williams Partners (NYSE:WPZ) is an industry-leading, large-cap natural gas infrastructure master limited partnership with a strong growth outlook and major positions in key U.S. supply basins. Williams Partners has operations across the natural gas value chain from gathering, processing and interstate transportation of natural gas and natural gas liquids to petchem production of ethylene, propylene and other olefins. Williams Partners owns and operates more than 33,000 miles of pipelines system wide – including the nation’s largest volume and fastest growing pipeline – providing natural gas for clean-power generation, heating and industrial use. Williams Partners’ operations touch approximately 30 percent of U.S. natural gas. Tulsa, Okla.-based Williams (NYSE:WMB), a premier provider of large-scale U.S. natural gas infrastructure, owns 60 percent of Williams Partners, including all of the 2 percent general-partner interest. www.williams.com
The reports, filings, and other public announcements of Williams Partners L.P. (WPZ) 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 (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters.
All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will exist or may occur in the future, are forward-looking statements. Forward-looking statements can be identified 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,” “assumes,” “guidance,” “outlook,” “in service date” 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:
Expected levels of cash distributions with respect to general partner interests, incentive distribution rights and limited partner interests;
Our and our affiliates’ future credit ratings;
Amounts and nature of future capital expenditures;
Expansion of our business and operations;
Financial condition and liquidity;
Cash flow from operations or results of operations;
Seasonality of certain business components;
Natural gas, natural gas liquids, and olefins prices, supply, and demand;
Demand for our services.
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 report. Many of the factors that will determine these results are beyond our ability to control or predict.
Williams Partners L.P.
Keith Isbell, 918-573-7308
John Porter, 918-573-0797
Brett Krieg, 918-573-4614