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Williams Partners Reports Dull 2Q

Zacks Equity Research

Williams Partners L.P. (WPZ) has registered second-quarter 2012 earnings of 29 cents per limited-partner unit, showing a marked deterioration of 68.1% from the year-ago profit level of 91 cents. The results were also below the Zacks Consensus Estimate of 49 cents.

Lower natural gas liquid (NGL) margins in the partnership’s midstream business led to the significant year-over-year decline. However, positive contributions from gas pipeline business and higher fee-based revenue in the midstream business partially offset the weakness.

Quarterly total revenue contracted 5.3% year over year to $1,583.0 million, and failed to meet the Zacks Consensus Estimate of $1,855.0 million.

Notably, Williams Partners' distributable cash flow (:DCF) attributable to partnership operations was $293 million against $397 million recorded in the year-ago quarter.

Recently, the partnership increased its quarterly cash distribution by 8.0% year over year to 79.25 cents per unit.

Segment Performance

Consolidated adjusted segment profit was $352.0 million, up approximately 25.7% from the year-ago level of $474.0 million.

Gas Pipeline: The segment reported profits of $147.0 million, down 3.3% year over year. A boost in project feasibility costs and other expenses led to the marginal downfall, which was partially offset by higher transportation revenues related to expansion projects that began operations in 2011.

Midstream Gas & Liquids: The segment’s profits decreased 39.9% year over year to $192.0 million. The underperformance was mainly due to the rapid decline in NGL prices that lowered the NGL as well as marketing margins. Again, higher expenses associated with its recent acquisitions and ramp-up of maintenance in the West, also contributed to the downside.

However, the segment’s fee-based revenues experienced a 19% year-over-year boost on higher volumes in the partnership’s Susquehanna Supply Hub area of the Marcellus Shale as well as recently acquired Ohio Valley Midstream system. Again, higher volumes on the Perdido Norte gas and oil pipelines in the deepwater Gulf of Mexico also added to this.


Recently, Williams Partners updated its outlook for 2012, 2013 and 2014.  Although the partnership reiterated its previously announced expectations through 2014, it lowers its earnings outlook for the same period reflecting weak commodity prices.

The partnership maintained its 2012 distribution per unit of $3.14, an 8% increase over 2011. Taking into consideration the midpoint of the guided range, the partnership expects full-year distribution for each 2013 and 2014 to increase by 9% to $3.43 and $3.75, respectively.

Williams Partners has narrowed its 2012 DCF expectations to $1.6 billion for 2012, $1.9 billion for 2013 and $2.3 billion for 2014. This revision mainly reflects lower-than-expected NGL prices and higher than normal maintenance capital expenditures. The partnership anticipates that the adverse effect of NGL prices on its performance will likely decline over the next few years as it shifts toward more fee-based operations.

Total adjusted segment profit will likely fall in the range of $1,630–$1,820 million for 2012, $1,800–$2,200 million for 2013 and $2,125–$2,575 million for 2014.

The capital expenditure for 2012 is expected around $5,735 million and $6,035 million, while $2,450 million to $2,850 million for 2013. For 2014, Williams Partners expects its capital expenditure guidance to be between $1,600 million and $2,000 million.

In Conclusion

Williams Partners retains a Zacks #5 Rank, which is equivalent to a short-term Strong Sell rating.

Williams Partners is an energy master limited partnership engaged in gathering, transportation, treating and processing of natural gas as well as fractionation and storage of NGLs. The general partner of the partnership is owned and managed by Williams Companies Inc. (WMB).

We remain apprehensive for the partnership’s midstream segment owing to the weak NGL price fundamentals. Williams Partners’ second-quarter 2012 results witnessed a marked deterioration owing to the weak NGL market as well as hike in operational cost. Moreover, it continues to see the impact of a weaker NGL pricing environment at its Midstream segment.

Although, the partnership aims to rapidly reduce its commodity based exposure in its midstream business by shifting to more of a fee based business model going forward, we believe it will take time for recognizing the true benefit of it.

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