|Williams Reports Year-End 2013 Financial Results
2/19/2014 5:06:00 PM
Williams (NYSE: WMB):
Williams (NYSE: WMB) announced 2013 unaudited net income attributable to Williams of $430 million, or $0.62 per share on a diluted basis, compared with net income of $859 million, or $1.37 per share on a diluted basis for 2012.
The decline in net income for 2013 was primarily due to lower natural gas liquids (NGL) margins at Williams Partners, as well as the absence of $207 million of income in first-quarter 2012 associated with the sale of certain of the company's former Venezuela operations, of which $144 million was recorded within discontinued operations. Full-year results were also impacted by over six months of lost production at the Williams Partners' Geismar olefins plant and $99 million of tax expense on undistributed foreign earnings related to the planned dropdown of our Canadian operations to Williams Partners, which is expected to close by the end of February 2014.
For fourth-quarter 2013, Williams reported a net loss of $14 million, or $.02 per share on a diluted basis, compared with net income of $149 million, or $0.23 per share, for fourth-quarter 2012.
The decrease in fourth-quarter 2013 net income was primarily due to Williams Partners' Geismar olefins plant being out of service for the entire fourth quarter and a decrease in NGL margins. The fourth quarter was also impacted by the previously mentioned $99 million of tax expense related to the planned Canadian dropdown. These declines were offset by an increase in fee-based revenues at Williams Partners and increased equity earnings from Access Midstream Partners.
Adjusted Income from Continuing Operations
Adjusted income from continuing operations was $559 million, or $0.81 per share, for 2013, compared with $695 million or $1.11 per share for 2012. For fourth-quarter 2013, adjusted income from continuing operations was $148 million, or $0.22 per share, compared with $160 million, or $0.25 per share for fourth quarter 2012.
Lower NGL margins at Williams Partners, including the effects of system-wide ethane rejection, as well as the unmitigated portion of the Geismar plant outage drove the decline in adjusted income from continuing operations during 2013. These were partially offset by higher fee-based revenues and Access Midstream Partners equity earnings in 2013.
Adjusted income from continuing operations reflects the removal of items considered unrepresentative of ongoing operations and is a non-GAAP measure. A reconciliation to the most relevant GAAP measure is attached to this news release.
Alan Armstrong, Williams' president and chief executive officer, made the following comments:
"In the face of the past year's challenges presented by the continued decline in NGL margins and the significant and tragic Geismar incident, we continued to focus on significantly growing our fee-based revenues. This growth was steady throughout 2013 and we expect it to grow even faster in 2014 and 2015 as we deliver on major projects for our customers in a safe and reliable manner. We also continued to win significant new business that will support strong dividend growth for years to come. We increased our full-year dividend to shareholders by 20 percent and we expect strong cash flow growth from Williams Partners and Access Midstream Partners to drive this level of annual dividend growth through the 2014 to 2015 guidance period.
"Late in 2013, we placed into service a number of important projects and we expect to place into service approximately $4.5 billion in new growth projects at the partnership level and an additional $800 million at the Williams level in 2014 and 2015. We continue growing our gathering and processing operations to meet producer needs in the Northeast while following through on a roster of Transco expansions to serve growing markets along the Eastern Seaboard. In the Gulf of Mexico, we're on schedule to bring into service significant deepwater infrastructure that is well supported by anchor customers and positioned for further upside as the deepwater Gulf of Mexico accelerates.
"In our NGL & Petchem Services business, we are moving the target in-service timing of the joint-venture Bluegrass Pipeline project to mid-to-late 2016 to better align with the needs of producers. We continue to engage in ongoing discussions with potential customers regarding commitments to this large-scale, integrated solution that connects Marcellus-Utica natural gas liquids to diverse domestic markets, fractionation, storage and export facilities in the Gulf Coast.
"We continue to see tremendous appetite for additional firm natural gas transportation capacity from a range of industry participants, as evidenced by our fully-contracted Atlantic Sunrise project, and we've identified abundant opportunities to help connect the very best supply basins with the fastest growing markets by building out large-scale, market-integrated infrastructure," Armstrong said.
Business Segment Results
Williams' business segments for financial reporting are Williams Partners, Williams NGL & Petchem Services, Access Midstream Partners, and Other.
The Williams Partners segment includes the consolidated results of Williams Partners L.P. (NYSE:WPZ); Williams NGL & Petchem Services includes the results of Williams' Canadian midstream businesses; and Access Midstream Partners includes the company's equity earnings from its 50-percent interest in privately held Access Midstream Partners GP, L.L.C. and an approximate 23-percent limited-partner interest in Access Midstream Partners, L.P. (NYSE: ACMP). Prior period segment results have been recast to reflect Williams Partners' acquisition of Williams' Gulf Olefins business, which was completed in November 2012.
Williams Partners is focused on natural gas transportation, gathering, treating, processing and storage; natural gas liquids fractionation, storage and transportation; olefins production; and oil transportation.
For 2013, Williams Partners reported segment profit of $1.61 billion, compared with $1.81 billion for 2012. For fourth quarter 2013, Williams Partners reported segment profit of $342 million, compared with $441 million for fourth quarter 2012.
The decline in Williams Partners' segment profit during 2013 is primarily due to $297 million, or 39 percent, lower NGLs margins, as well as the Geismar olefins plant being out of service in the third and fourth quarters. The decrease was partially offset by a $209 million, or 8 percent, increase in fee-based revenues and by $50 million of insurance recoveries related to the Geismar incident.
There is a more detailed description of Williams Partners' business results in the partnership's 2013 financial results news release, also issued today.
Williams NGL & Petchem Services
Williams NGL & Petchem Services primarily includes Williams' midstream operations in Alberta, Canada, including an oil sands offgas processing plant near Fort McMurray, 260 miles of NGL and olefins pipelines and an NGL/olefins fractionation facility and butylene/butane splitter facility at Redwater. Williams NGL & Petchem Services also includes the proposed Bluegrass Pipeline.
Williams NGL & Petchem Services reported segment profit of $38 million for 2013, compared with segment profit of $99 million for 2012. For the fourth quarter of 2013, Williams NGL & Petchem Services reported segment loss of $18 million, compared with segment profit of $27 million for the fourth quarter 2012.
The decline in segment profit during the year and the fourth quarter was primarily due to a scheduled shutdown for maintenance and tie-in of the newly constructed and commissioned ethane recovery facilities, as well as a third-party outage. Additionally, the write-off of $20 million costs associated with a canceled pipeline project in 2013 contributed to lower results.
Access Midstream Partners
The 2013 segment profit of $61 million for Access Midstream Partners includes $93 million of equity earnings recognized from Access Midstream Partners, L.P. reduced by $63 million noncash amortization of the difference between the cost of Williams' investment and the company's underlying share of the net assets of Access Midstream Partners, L.P., as well as noncash gains of $31 million resulting from Access Midstream Partners' equity issuances in 2013. These equity issuances resulted in the dilution of our ownership of limited partnership units from approximately 24 percent to 23 percent, which is accounted for as though we sold a portion of our investment. In 2013, Williams received regular quarterly distributions totaling $93 million from Access Midstream Partners, L.P.
ACMP raised its fourth quarter cash distribution by 23.3 percent compared to the prior year and 3.7 percent compared to the prior quarter.
The decline in segment profit for 2013 in the Other segment is primarily due to the absence of the gain of $53 million recognized in 2012 related to the 2010 sale of the company's Accroven investment in Venezuela. This gain has been excluded from the adjusted segment profit for Other.
Recent Operational Achievements
Williams Partners NGL & Petchem Services
The company continues to expect to increase the full-year dividend it pays shareholders by 20 percent in each 2014 and 2015 – to per-share amounts of $1.75 and $2.11, respectively. Williams' full-year dividend for 2013 was $1.44 per share. The expected quarterly increases in Williams' dividend are subject to quarterly approval of Williams' board of directors. Williams has paid a common stock dividend every quarter since 1974.
Williams expects strong cash flow growth from Williams Partners and Access Midstream Partners to drive the cash dividend growth through the 2014 to 2015 guidance period and beyond.
Williams Partners' profitability and cash flow guidance ranges are unchanged from guidance issued on October 30, 2013. Williams Partners expects adjusted segment profit + DD&A to grow by more than 50 percent for the 2013 versus 2015 guidance period. Several key drivers and assumptions are embedded in this estimate. The largest risks to achieving this growth in 2014 are:
a. Natural gas and natural gas liquids prices that drive assumed NGL margins and drilling activities, as well as olefins prices and margins.
b. Recovery of business interruption insurance proceeds offsetting the majority of the Geismar plant outage in 2014, which assumes a June startup.
c. The timely completion and producer startup of the Gulfstar One project and Discovery's Keathley Canyon System.
d. The delivery of new facilities in the Marcellus producing region along with expected volume growth.
e. The in-service date for Transco's Rockaway Lateral.
Williams Partners' Geismar plant is expected to be out of service until June 2014. The expected delay in returning the plant to service resulted from a variety of factors including the extended loss of utilities (primarily steam and electrical systems) severely damaged in the incident; lower than expected productivity due to congestion and complexity from temporary utility equipment impacting both the rebuild and expansion efforts; and restrictions in work-area access due to extensive clean-up procedures. Concurrently, the company is implementing additional systems and processes while conducting the necessary training to support the safe start-up and continued reliable operation of the facility.
Williams Partners has $500 million of combined business interruption and property damage insurance related to this event (subject to deductibles and other limitations) that is expected to significantly mitigate the financial loss. Based on current commodity pricing assumptions and property damage estimates, the company currently estimates approximately $430 million of cash recoveries from insurers related to business interruption losses and approximately $70 million related to property damage. The company's current estimate of uninsured business interruption loss, property damage loss and other losses totals $83 million, of which $73 million occurred in 2013 and $10 million in 2014. A $50 million payment from insurers was received during the third quarter of 2013. In February 2014, insurers agreed to pay a second installment of $125 million with funds expected to be received in the first quarter.
The assumed expanded plant restart date and repair cost estimate are subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions. The assumed property damage and business interruption insurance proceeds are also subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions.
Capital expenditures for Williams included in guidance for 2014 and 2015 have been decreased by approximately $500 million. Included in this decrease is a reduction of approximately $1.4 billion in Williams NGL & Petchem Services segment primarily due to a change in the target in-service date of the proposed Bluegrass Pipeline and a shift in certain Canada projects to Williams Partners (following the dropdown). This decrease is significantly offset by approximately $900 million of higher estimated capital expenditures at Williams Partners during this period, which primarily relates to new projects.
Regarding the proposed Bluegrass Pipeline, the updated target in-service date – to mid-to-late 2016 vs. late 2015 – is designed to better align with the needs of producers. The new timeframe is more consistent with evolving market conditions as the Bluegrass Pipeline project continues ongoing discussions with potential customers regarding commitments to the pipeline, fractionation, storage and export services. Completion of this project is subject to all necessary or required approvals, elections, and actions, as well as execution of formal customer commitments.
Williams' current guidance for its earnings and capital expenditures are displayed in the following table:
Year-End Materials to be Posted Shortly; Q&A Webcast Scheduled for Tomorrow
Williams' year-end 2013 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 L.P. will host a joint Q&A live webcast on Thursday, Feb. 20, at 9:30 a.m. EST. A limited number of phone lines will be available at (888) 329-8905. International callers should dial (719) 325-2301. A link to the live year-end webcast, as well as replays of the webcast in both streaming and downloadable podcast formats, will be available for two weeks following the event at www.williams.com and www.williamslp.com.
The company plans to file its 2013 Form 10-K with the Securities and Exchange Commission next week. Once filed, the document will be available on both the SEC and Williams websites.
This press release includes certain financial measures – adjusted segment profit, adjusted segment profit + DD&A, adjusted income from continuing operations ("earnings") and adjusted earnings per share – that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission. Adjusted segment profit, adjusted earnings and adjusted earnings per share measures exclude items of income or loss that the company characterizes as unrepresentative of its ongoing operations. Management believes these measures provide investors meaningful insight into the company's results from ongoing operations.
This press 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 widely accepted financial indicators used by investors to compare a company's performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the company and aid investor understanding. Neither adjusted segment profit, adjusted segment profit + DD&A, adjusted earnings, nor adjusted earnings per share measures are intended to represent an alternative to segment profit, net income or earnings per share. 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 (NYSE: WMB)
Williams is one of the leading energy infrastructure companies in North America. It owns interests in or operates 15,000 miles of interstate gas pipelines, 1,000 miles of NGL transportation pipelines, and more than 10,000 miles of oil and gas gathering pipelines. The company's facilities have daily gas processing capacity of 6.6 billion cubic feet of natural gas, NGL production of more than 200,000 barrels per day and domestic olefins production capacity of 1.35 billion pounds of ethylene and 90 million pounds of propylene per year. Williams owns approximately 64 percent of Williams Partners L.P. (NYSE: WPZ), one of the largest diversified energy master limited partnerships. Williams Partners owns most of Williams' interstate gas pipeline and domestic midstream assets. Williams also owns Canadian operations and certain domestic olefins pipelines assets, as well as a significant investment in Access Midstream Partners, L.P. (NYSE: ACMP), a midstream natural gas services provider. The company's headquarters is in Tulsa, Okla. For more information, visit www.williams.com, where the company routinely posts important information.
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Investors are urged to closely consider the disclosures and risk factors in our annual report on Form 10-K filed with the SEC on Feb. 27, 2013, and each of our quarterly reports on Form 10-Q available from our offices or from our website at www.williams.com.