Williams Partners' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Williams Partners L.P. (WPZ)

Q2 2012 Earnings Call

August 2, 2012, 11:00 am ET

Executives

John Porter - IR

Alan Armstrong - Chairman & CEO

Rory Miller - SVP, Midstream

Frank Ferazzi - Vice President, Gas Pipeline, East Region

Analysts

Ted Durbin - Goldman Sachs

Faisel Khan - Citi

TJ Schultz - RBC Capital Markets

Kevin Smith - Raymond James

Presentation

Operator

Good day everyone and welcome to the Williams Partners second 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 John Porter, Head of Investor Relations. Please go ahead, sir.

John Porter

Thanks Brian. Good morning and welcome. As always, we thank you for your interest in Williams Partners. As you know, yesterday afternoon we released our financial results and posted several important items on our website, williamslp.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 Williams Partners 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; Randy Bernard 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 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 will turn it over to Alan.

Alan Armstrong

Great, thanks John, and good morning everyone. Thanks for taking the time to join us again if some of you all coming back from the WMB call. Well certainly despite a disappointing financial performance for the second quarter that we did pre-released on July 23rd,we are very pleased to continue to reaffirm our cash distribution growth of 8% here in ‘12 and growing to 9% in ‘13 and ‘14.

Our confidence in that cash distribution growth continues to be very strong based on the degree of growth that we have built in here as well as a fairly conservative price that we have built in here for ‘13 and ‘14 and as well the degree of growth we continue to see in our fee-based business and the way that all of our projects are going right now that will grow that fee-based business even further and fairly significantly.

In fact, we are showing that fee-based business growing 19% from 2Q of ‘11 to 2Q of ‘12 and from ‘11 to ‘14 we’re expecting an 89% increase in the fee-based business and again those are not – there is not a lot of speculation on our part in terms of the projects that support that, certainly the drilling volumes and so forth that continue to go on and will have to occur, but generally that growth is well contracted and we know exactly where it’s coming from.

So anyway, we are very pleased to reaffirm that guidance, I’ll talk a little bit about here briefly about second quarter performance and some other things that hit that. The rapid decline in NGL prices, certainly that we saw from first quarter to second quarter and then one thing I think is always for our investors to understand is that the way that our product in transit on our books work, whenever we see a price decline, we can attract that product in transit; it’s reprised to the lower pricing for the quarter and so from Q1 to Q2 that impact was about $22 million hit over and above which you could kind of see if you were following in our unit NGL prices. So it tends to accelerate itself both to the downside and then again to the upside.

Some other factors though beyond pricing, we did have some operational expenses. They were a bit higher particularly from a lot of maintenance on our Western plants as the third-party fractionator outage happened towards the end of the quarter and we took advantage of that to accelerate things like turbine overhauls and industrial maintenance that we are scheduled for later in the year.

And as well we also had quite a bit of additional O&M expense and depreciation expense in the second quarter that was previously unplanned as we closed on the Cayman acquisitions, now referred to as Ohio Valley and as well lot of continued startup expense for the Laser System as well.

The good news, as I mentioned is on fee-based expansion. We continue to see that move up in the right direction. And then I’ll also now comment a little bit on our prices and kind of what we’re seeing there. And first of all, first and second quarter pricing dropped about 20% on NGL margins, on the unit margin and the balance of the year forecast what we have in here right now is expected to be about 30% lower than what we saw in first quarter of ‘12 and that is really driven by much lower expectation on ethane and propane and that has dragged the NGL crude ratio down to about 40% versus historical average, 10-year historical average of 60% and in ‘11 that was almost 57%.

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