Williams Companies, Inc. (The) (WMB)

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Williams Companies (WMB)

Q4 2012 Earnings Call

February 21, 2013 9:30 am ET

Executives

John Porter

Alan S. Armstrong - Chief Executive Officer, President, Director, Chairman of Williams Partners Gp Llc and Chief Executive Officer of Williams Partners Gp Llc

Donald R. Chappel - Chief Financial Officer and Senior Vice President

Randall L. Barnard - Senior Vice President of Gas Pipeline

Francis E. Billings - Senior Vice President of Northeastern G&P Operations

Randy M. Newcomer - Acting Senior Vice President of Ngl and Petchem Services

Frank J. Ferazzi - Vice President, Director and Member of Management Committee

Analysts

Christine Cho - Barclays Capital, Research Division

Holly Stewart - Howard Weil Incorporated, Research Division

Faisel Khan - Citigroup Inc, Research Division

Gary Stromberg - Barclays Capital, Research Division

Bradley Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Craig Shere - Tuohy Brothers Investment Research, Inc.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

TJ Schultz - RBC Capital Markets, LLC, Research Division

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Selman Akyol - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to the Williams and Williams Partners Fourth Quarter 2012 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. John Porter, Head of Investor Relations. Please go ahead, sir.

John Porter

Thank you, Glynne. Good morning, and welcome. As always, we thank you for your interest in Williams and Williams Partners.

Yesterday afternoon, we released our financial results and posted several important items on our websites, williams.com and williamslp.com. These items include yesterday's press releases with related schedules and the accompanying Analyst Packages; a presentation discussing these results, guidance updates and growth opportunities with related audio commentary from our President and CEO, Alan Armstrong; and an update to our data books, which contain detailed information regarding various aspects of our business.

This morning, Alan will make a few comments, and then we will open the discussion up for Q&A. Rory Miller is here from our Midstream business; Frank Ferazzi is here from our Gas Pipeline business; and our CFO, Don Chappel, is also available to respond to any questions.

In yesterday's presentation and also in our data books, you will find an important disclaimer related to forward-looking statements. This disclaimer is important and integral to all of our remarks, and you should review it. Also included in our presentation materials are various non-GAAP measures that's been reconciled back to Generally Accepted Accounting Principles. Those reconciliation schedules appear at the back of the presentation materials.

So with that, I'll turn it over to Alan Armstrong.

Alan S. Armstrong

Great. Thank you, John, and thanks to all of you on the phone and webcast, who have joined us this morning. I'm certainly looking forward to your questions. Before we open up the phone lines, I want to take the opportunity to briefly touch on a few key themes for the Williams and Williams Partners investment story. In short, we are rewarding investors now with strong dividend and cash distribution growth through the guidance period and we are expanding our business to create continuing value growth in a very resilient future dividend and distribution growth.

First, let's take a look at our fourth quarter performance. We turned in solid results in line with our third quarter guidance, despite a natural gas liquids margin environment that dropped even faster than we expected. To give some scale to that drop and to the headwinds we were facing, it's important to understand that our fourth quarter NGL margins were down 46% from the prior year, margins took another 8% hit from what we thought were low third quarter levels; and from a financial perspective, our fourth quarter NGL margins were off about $75 million compared just to the midpoint of the forecast that we shared at the third quarter results.

Much of this didn't show up in the unit margin because we didn't produce ethane when it was in the negative margin territory. So what you saw there is a little bit higher unit margin than you might have expected but lower volumes as a result of that ethane rejection. We provide some detail in our slides regarding the positions that allowed us to overcome these very low NGL margins but here are some of the highlights there. First, we're successfully growing our fee-based revenues in this business for Williams Partners. In the Midstream segment, we generated fourth quarter fee-based revenues 18% higher than a year ago. For both the Midstream and gas pipeline business, we generated fee-based revenues that were up 5% from the third quarter to the fourth quarter. And second, we continue to benefit from the natural hedge against ethane exposure that our Olefins business creates. Williams Partners benefited in the last 2 months of 2012 with the acquisition of the Olefins business and there is even greater benefit for WPZ ahead with the well-timed expansion of the Geismar facility expected in service later this year.

This combination supports our ability to reward investors with strong growth in cash dividends and cash distributions. We are reaffirming our guidance at midpoint to grow Williams' cash dividend by some 20% with this year and -- for both this year and next year. And for Williams Partners, we are reaffirming our guidance at midpoint to increase the cash distributions we pay unitholders by approximately 9% in both '13 and '14.

When we add our large platform of growth capital projects and the rapid growth in cash distributions we're expecting from a recent investment in Access Midstream, what you'll have is a value-creation engine that is powerful, durable and resilient and will continue to grow for many years to come.

In our earnings announcements yesterday afternoon, you also saw that we are lowering our 2013 and '14 earnings and cash flow guidance. We expect the growth in our fee-based business will partially offset the effect of sharply lower ethane and propane prices and ethylene prices in '14. And we will see Williams Partners benefiting from the late 2012 acquisition of Williams' Olefins business and a significant expansion of our Geismar facility in the fourth quarter. And I also would remind you that we have quite a bit of collared contracts that are expiring here in the first quarter of '13 and of course, those allow us to get even better exposed to the weak ethane price and continue our short position at Geismar there on ethane.

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