Williams Companies, Inc. (The) (WMB)

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Williams Companies (WMB)

Q3 2012 Earnings Call

November 01, 2012 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

Rory Lee Miller - Senior Vice President of Midstream

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

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

Richard Rodekohr

Analysts

Faisel Khan - Citigroup Inc, Research Division

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

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Craig Shere - Tuohy Brothers Investment Research, Inc.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

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

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

Presentation

Operator

Good day, everyone, and welcome to the Williams Companies' Third Quarter 2012 Earnings Release 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.

John Porter

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

As you know, yesterday afternoon, we released our financial results and posted several important items on our website, williams.com. These items include the press release of our results with related schedules and our analyst package; a presentation on our results and growth opportunities with related audio commentary from our President and CEO, Alan Armstrong; and an update to our quarterly data book, which contains detailed information regarding various aspects of our business.

This morning, Alan will make a few brief 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 of your questions.

In yesterday's presentation and also in the quarterly data book, 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 have 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.

Alan S. Armstrong

Thanks, John, and good morning, everyone. First, let me wish everyone who has been affected by Hurricane Sandy, the best of luck in the recovery. As you know, given the significant disruption that occurred to the normal market activity, we decided to delay our earnings release webcast by a day. We also know this concentrated a number of earnings calls today, so thanks a bunch for joining us this morning for this webcast amongst a very busy morning.

Hopefully, you had a chance to listen to my prerecorded comments released yesterday afternoon. But just in case you didn't, I'll quickly hit on some key themes and then we'll move on to our Q&A session.

We have several really important items to communicate to you this week, starting with, of course, a review of our third quarter performance. So I'll quickly touch on the key themes from that discussion.

For the third quarter, WMB's adjusted income was up about 17% over second quarter, in spite of NGL fracs that for -- sorry, frac spreads that were about 18% lower, on average, than the already-low 2 -- second quarter amounts and the impact of Hurricane Isaac, and I'll talk about that just a little bit.

With regard to the NGL frac spread, we saw about a 9% lower average NGL composite price, but an even higher impact from natural gas Street [ph] prices that were up about 26%, on average. So certainly, the frac spread environment that we saw in the third quarter continued to decline from what was a heavy decline from first quarter to second quarter, and so we were not expecting that degree of decline into the third quarter. And again, a lot of that was impacted by gas prices moving up.

Turning to fee-based revenues now for third quarter. This measure grew about 5% per -- year-over-year for the third quarter. And importantly, at the Midstream segment for WPZ, this grew at about a 12% rate, so continued great volume growth there in our fee-based revenues.

And just to a highlight a few of the areas that affected that, our gathering volumes in the business, so that's as our natural gas gathering volumes in the Midstream business, were up 17% higher from 3Q '11 to 3Q of '12. And in the eastern onshore, which is basically at our Marcellus area and the Perdido Norte, which is in the western Gulf of Mexico, we saw both of those areas gathering volumes, actually double from year-to-year.

The main driver of the 12% growth rate for -- overall for our business was the eastern G&P business, as I mentioned. And, of course, one of the drivers there was the acquisition from the Caiman, which we now refer to as the Ohio Valley Midstream in our business, and that was up about $30 million between years.

Also, there was a couple of factors that brought that 12% growth rate down and tended to lessen it. The Hurricane Isaac reduced some of our Gulf Coast fee-based revenues, and in third quarter of '11, we actually had a pretty significant contract settlement related to some of our Perdido Norte business. So on a normalized basis, we see these fee-based revenues actually growing even stronger than the 12% for WPZ Midstream.

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