Williams Partners L.P.
) 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
Quarterly total revenue contracted 5.3% year over year to $1,583.0
million, and failed to meet the Zacks Consensus Estimate of
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.
Consolidated adjusted segment profit was $352.0 million, up
approximately 25.7% from the year-ago level of $474.0 million.
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
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,
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.
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.
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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