Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
WPZ > SEC Filings for WPZ > Form 10-Q on 31-Oct-2012All Recent SEC Filings

Show all filings for WILLIAMS PARTNERS L.P.

Form 10-Q for WILLIAMS PARTNERS L.P.


31-Oct-2012

Quarterly Report

Management's Discussion and Analysis of

Financial Condition and Results of Operations

General

We are primarily an energy infrastructure company focused on connecting North America's significant hydrocarbon resource plays to growing markets for natural gas and natural gas liquids (NGLs). We manage our business and analyze our results of operations on a segment basis. Our operations are divided into two business segments: Gas Pipeline and Midstream Gas & Liquids (Midstream).

Gas Pipeline includes Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline GP (Northwest Pipeline), which own and operate a combined total of approximately 13,700 miles of pipelines. Gas Pipeline also holds interests in joint venture interstate and intrastate natural gas pipeline systems including a 50 percent interest in Gulfstream Natural Gas System L.L.C. (Gulfstream), which owns an approximate 745-mile pipeline. Our ownership interest in Gulfstream has increased by 1 percent, a result of a second-quarter 2012 acquisition from a subsidiary of The Williams Companies, Inc. (Williams).

Midstream is comprised primarily of significant, large-scale operations in the Rocky Mountain and Gulf Coast regions, operations in the Marcellus Shale region, and various equity investments in domestic natural gas gathering and processing assets and NGL fractionation and transportation assets. Midstream's assets also include substantial operations and investments in the Four Corners region, the Piceance basin, as well as an NGL fractionator and storage facilities near Conway, Kansas.

Williams currently holds an approximate 66 percent interest in us, comprised of an approximate 64 percent limited partner interest and all of our 2 percent general partner interest.

Unless indicated otherwise, the following discussion and analysis of critical accounting estimates, results of operations, and financial condition and liquidity relates to our current continuing operations and should be read in conjunction with the consolidated financial statements and notes thereto of this Form 10-Q and Amendment No. 1 to our 2011 Annual Report on Form 10-K/A, filed April 9, 2012.

Acquisitions

In February 2012, we completed the acquisition of 100 percent of the ownership interests in certain entities from Delphi Midstream Partners, LLC (Laser Acquisition). These entities primarily own the Laser Gathering System, which is comprised of 33 miles of 16-inch natural gas pipeline and associated gathering facilities in the Marcellus Shale in Susquehanna County, Pennsylvania, as well as 10 miles of gathering lines in southern New York. This acquisition represents a strategic platform to enhance our expansion in the Marcellus Shale by providing our customers with both operational flow assurance and marketing flexibility. (See Results of Operations - Segments, Midstream.)

In April 2012, we completed the acquisition of 100 percent of the ownership interest in Caiman Eastern Midstream, LLC (Caiman Acquisition). The acquired entity operates a gathering and processing business in northern West Virginia, southwestern Pennsylvania and eastern Ohio. We believe the acquisition will provide us with a significant footprint and growth potential in the NGL-rich portion of the Marcellus Shale. (See Results of Operations - Segments, Midstream.)

Distributions

In October 2012 our general partner's Board of Directors approved a 2 percent increase to our quarterly distribution to unitholders. (See Management's Discussion and Analysis of Financial Condition and Liquidity.)


Table of Contents

Management's Discussion and Analysis (Continued)

Overview of Nine Months Ended September 30, 2012

Net Income for the nine months ended September 30, 2012, changed unfavorably by $209 million compared to the nine months ended September 30, 2011, primarily due to lower NGL production and marketing margins, higher operating costs and selling, general, and administrative expenses (SG&A), partially offset by an increase in fee revenue. (See Results of Operations - Segments, Midstream.)

Our net cash provided by operating activities for the nine months ended September 30, 2012, decreased $187 million compared to the nine months ended September 30, 2011, primarily due to lower operating income.

Recent Events

In February 2012, we announced a new interstate gas pipeline project. The new 120-mile Constitution Pipeline will connect our gathering system in Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems. We currently own 75 percent of Constitution Pipeline. This project, along with the newly acquired Laser Gathering System and our Springville pipeline are key steps in our strategy to create the Susquehanna Supply Hub, a major natural gas supply hub in northeastern Pennsylvania. In April 2012, we began the Federal Energy Regulatory Commission (FERC) pre-filing process for this project and expect to file a FERC application in January 2013.

In April 2012, we completed an equity issuance of 10 million common units representing limited partner interests in us at a price of $54.56 per unit. Subsequently, we sold an additional 973,368 common units for $54.56 per unit to the underwriters upon the underwriters' exercise of their option to purchase additional common units. We also sold 16,360,133 common units to Williams for $1 billion. The net proceeds of these transactions were used for general partnership purposes, including funding a portion of the cash purchase price of the Caiman Acquisition.

In July 2012, Transco issued $400 million of 4.45 percent senior unsecured notes due 2042 to investors in a private debt placement. A portion of these proceeds was used to repay Transco's $325 million 8.875 percent senior unsecured notes that matured on July 15, 2012.

In July 2012, we completed an agreement with Caiman Energy, LLC and others to develop large-scale natural gas gathering and processing and the associated liquids infrastructure serving oil and gas producers in the Utica shale, primarily in Ohio and northwest Pennsylvania. The parties anticipate investing approximately $800 million in potential development over the next several years, of which we expect to fund approximately $380 million.

Following Williams' spin-off of WPX Energy, Inc. (WPX) at the end of 2011 and in consideration of the growth plans of the ongoing business, Williams has initiated an effort to better align resources to support our business strategy in 2012 and beyond. This initiative is designed to enhance capabilities and determine the right organization - throughout the business areas and shared-services functions - to execute that strategy. Williams has engaged a consulting firm to assist with this project and expects to implement changes later this year through early 2013. The recommendations arising from this effort will result in changes in our current organizational structure that will impact how our businesses are managed and thus is expected to result in changes to our future segment reporting structure beginning in 2013.

In August 2012, we completed an equity issuance of 8,500,000 common units representing limited partner interests in us at a price of $51.43 per unit. Subsequently, we sold an additional 1,275,000 common units for $51.43 per unit to the underwriters upon the underwriters' exercise of their option to purchase additional common units. The net proceeds of these transactions were primarily used to repay outstanding borrowings on our senior unsecured revolving credit facility (revolver).

In August 2012, we completed a public offering of $750 million of 3.35 percent senior unsecured notes due 2022. We used the net proceeds to repay outstanding borrowings on our revolver and for general partnership purposes.


Table of Contents

Management's Discussion and Analysis (Continued)

In October 2012, we agreed to purchase Williams' 83.3 percent undivided interest and operatorship of an olefins-production facility located in Geismar, Louisiana, along with a refinery grade propylene splitter and pipelines in the Gulf region for total consideration valued at approximately $2.364 billion. The acquisition is expected to bring more certainty to cash flows that are currently exposed to volatile ethane prices by shifting the commodity price exposure to ethylene. We expect to fund substantially all of the transaction with the issuance of limited partner units to Williams. The transaction is expected to close in November 2012.

Company Outlook

During the second quarter of 2012, NGL margins declined sharply largely attributable to a record-warm winter, a slowing global economy, and growing NGL supplies. The downward trend of per-unit NGL margins has leveled-off during third quarter 2012 and we anticipate a modest level of improvement through the end of the year. However, economic and commodity price indicators can be volatile and it is reasonably possible that the global economy could worsen and/or energy commodity margins may decline, negatively impacting our future operating results. Over the next few years, we expect the influence of NGL margins on our operating results to diminish as we transition to an overall business mix that is increasingly fee-based.

Our business plan for the remainder of 2012 continues to reflect both growth in distributions and significant capital investments. Our planned capital investments total approximately $8.167 billion, including equity issued in the previously discussed acquisitions. We expect to fund a significant portion of these activities through debt and/or equity issuances. We expect to maintain an attractive cost of capital and reliable access to capital markets, both of which will allow us to pursue development projects and acquisitions. We expect to be able to grow through these continued investments in our businesses in a way that meets customer needs and enhances our competitive position by:

Continuing to invest in and grow our midstream businesses and interstate natural gas pipeline systems;

Retaining the flexibility to adjust our planned levels of capital and investment expenditures in response to changes in economic conditions or business opportunities.

Potential risks and obstacles that could impact the execution of our plan include:

General economic, financial markets, or industry downturn;

Lower than anticipated energy commodity margins;

Availability of capital;

Lower than expected levels of cash flow from operations;

Counterparty credit and performance risk;

Decreased volumes from third parties served by our midstream business;

Changes in the political and regulatory environments;

Physical damages to facilities, especially damage to offshore facilities by named windstorms.

We continue to address these risks through disciplined investment strategies, commodity hedging strategies, and maintaining ample liquidity from cash and cash equivalents and unused revolver capacity.


Table of Contents

Management's Discussion and Analysis (Continued)

Williams incurs certain corporate general and administrative costs which are charged to its business segments, including us. We expect an increase in our proportionate share of these costs in 2012, due in part to Williams' December 2011 spin-off of WPX, its former exploration and production business.

Critical Accounting Estimates

We completed the Laser Acquisition in February 2012 and the Caiman Acquisition in April 2012. Based on the final Laser and preliminary Caiman fair value measurements, our September 30, 2012, Consolidated Balance Sheet includes $650 million of goodwill related to these acquisitions, which we allocated to our Northeast gathering and processing businesses (the reporting unit) within the Midstream segment. (See Note 2 of Notes to Consolidated Financial Statements.) We will evaluate the goodwill for impairment annually as of October 1 or more frequently if impairment indicators are present. These indicators may include materially unfavorable changes in market fundamentals such as sustained reductions in producer drilling activity, changes in our business strategy in this area, our ability to fund expected levels of investment and significantly lower than expected operating results. Our evaluation will include an assessment of events or circumstances to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If so, we will further compare our estimate of the fair value of the reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, a computation of the implied fair value of the goodwill is compared with its related carrying value. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss will be recognized in the amount of the excess.

As a result of these acquisitions, we have also recorded a total of approximately $1.7 billion in intangible assets as of September 30, 2012. The identifiable intangible assets recognized in the acquisitions are primarily related to gas gathering, processing and fractionation contracts and relationships with customers. These intangible assets are being amortized on a straight-line basis over an initial 30-year period during which the customer contracts and relationships are expected to contribute to our cash flows.

We will evaluate these intangible assets for both changes in the expected remaining useful lives and impairment when events or changes in circumstances indicate, in our management's judgment, that the estimated useful lives have changed or the carrying value of such assets may not be recoverable. Changes in an estimated remaining useful life would be reflected prospectively through amortization over the revised remaining useful life. When an indicator of impairment has occurred, we compare our management's estimate of undiscounted future cash flows attributable to the intangible assets to the carrying value of the assets to determine whether an impairment has occurred and we apply a probability-weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes. If an impairment of the carrying value has occurred, we determine the amount of the impairment recognized in the financial statements by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value.


Table of Contents

Management's Discussion and Analysis (Continued)



Results of Operations

Consolidated Overview

The following table and discussion is a summary of our consolidated results of
operations for the three and nine months ended September 30, 2012, compared to
the three and nine months ended September 30, 2011. The results of operations by
segment are discussed in further detail following this consolidated overview
discussion.



                                         Three months ended                                            Nine months ended
                                            September 30,                                                September 30,
                                         2012           2011         $ Change*       % Change*         2012          2011         $ Change*       % Change*
                                             (Millions)                                                    (Millions)
Revenues                               $   1,527       $ 1,673             -146              -9 %    $   4,795      $ 4,923             -128              -3 %
Costs and expenses:
Costs and operating expenses               1,089         1,172              +83              +7 %        3,389        3,446              +57              +2 %
Selling, general, and administrative
expenses                                      86            66              -20             -30 %          266          207              -59             -29 %
Other (income) expense - net                   9             4               -5            -125 %           27           (8 )            -35              NM
General corporate expenses                    41            29              -12             -41 %          123           86              -37             -43 %

Total costs and expenses                   1,225         1,271                                           3,805        3,731
Operating income                             302           402                                             990        1,192
Equity earnings                               30            40              -10             -25 %           87          101              -14             -14 %
Interest accrued - net                      (101 )        (102 )             +1              +1 %         (313 )       (312 )             -1              -
Interest income                                1            -                +1              NM              2            1               +1            +100 %
Other income (expense) - net                   5             2               +3            +150 %           12            5               +7            +140 %

Net income                             $     237       $   342             -105             -31 %    $     778      $   987             -209             -21 %

* + = Favorable change; - = Unfavorable change; NM = A percentage calculation is not meaningful due to a change in signs, a zero-value denominator, or a percentage change greater than 200.

Three months ended September 30, 2012 vs. three months ended September 30, 2011

The decrease in revenues is primarily due to Midstream's lower NGL production and marketing revenues reflecting an overall decrease in average NGL per-unit sales prices. The lower NGL marketing revenues are partially offset by higher NGL volumes and new volumes from natural gas marketing activities. These decreases are partially offset by Midstream's increased fee revenues primarily due to higher gathering and processing fee revenues resulting from higher volumes in the Marcellus Shale, including new volumes on our recently acquired natural gas gathering and processing assets in our Ohio Valley Midstream and Susquehanna Supply Hub businesses.

The decrease in costs and operating expenses is primarily due to decreased costs at Midstream associated with NGL marketing purchases largely due to lower average NGL prices, partially offset by higher NGL volumes and new volumes from natural gas marketing activities. In addition, Midstream's NGL production costs decreased reflecting lower average natural gas prices. These decreases are partially offset by Midstream's higher operating costs resulting from our acquisition transactions in 2012 and increased depreciation on certain assets in the Gulf Coast region, as well as Gas Pipeline's increased maintenance expenses.

The increase in SG&A is primarily due to an increase at Midstream reflecting higher employee-related expenses and information technology costs driven by general growth within Midstream's business operations.

The increase in general corporate expenses includes an increase in our proportionate share of these costs as a result of Williams' spin-off of WPX, which was completed on December 31, 2011. In addition, general corporate expenses in 2012 includes $6 million of expense related to Williams' engagement of a consulting firm to better align resources to support our business strategy following Williams' spin-off of WPX.


Table of Contents

Management's Discussion and Analysis (Continued)

The decrease in operating income generally reflects lower NGL production margins primarily driven by energy commodity price changes including lower NGL prices, partially offset by lower natural gas prices, and higher operating costs and SG&A, partially offset by increased fee revenues as previously discussed.

Equity earnings decreased primarily due to lower Discovery Producer Services LLC (Discovery) and Aux Sable Liquid Products LP (Aux Sable) equity earnings at Midstream primarily due to lower operating results.

Nine months ended September 30, 2012 vs. nine months ended September 30, 2011

The decrease in revenues is primarily due to Midstream's lower NGL production revenues reflecting an overall decrease in average NGL per-unit sales prices. Partially offsetting this decrease is Midstream's higher fee revenues resulting from increased gathering and processing fee revenues from higher volumes in the Marcellus Shale, including new volumes on our recently acquired gathering and processing assets in our Ohio Valley Midstream and Susquehanna Supply Hub businesses and higher volumes in the western deepwater Gulf of Mexico and in the Piceance basin. Additionally, Gas Pipeline's higher transportation revenues from expansion projects placed into service in 2011 and 2012 also partially offset this decrease.

The decrease in costs and operating expenses is primarily due to decreased costs at Midstream associated with production of NGLs reflecting a decrease in average natural gas prices. Partially offsetting this decrease is increased operating costs at Midstream resulting from our acquisition transactions in 2012 and higher maintenance expenses, partially offset by lower costs in our Four Corners area related to the consolidation of certain operations. In addition, marketing purchases at Midstream increased primarily due to higher volumes, partially offset by significantly lower average NGL prices.

The increase in SG&A is primarily due to an increase at Midstream reflecting acquisition and transition-related costs as well as higher information technology and employee-related expenses driven by general growth within Midstream's business operations.

The unfavorable change in other (income) expense - net within operating income primarily reflects a $15 million increase in project feasibility costs and the absence of a $10 million reversal of project feasibility costs from expense to capital in 2011, both at Gas Pipeline.

The increase in general corporate expenses is primarily due to an increase in our proportionate share of these costs as a result of Williams' spin-off of WPX, which was completed on December 31, 2011. In addition, general corporate expensesin 2012 includes $13 million of expense due to Williams' engagement of a consulting firm to better align resources to support our business strategy following Williams' spin-off of WPX.

The decrease in operating income generally reflects lower NGL production margins primarily due to energy commodity price changes including lower NGL prices, partially offset by lower natural gas prices, a decrease in margins related to the marketing of NGLs, and higher operating costs and SG&A, partially offset by increased fee revenues as previously discussed.

Equity earnings decreased primarily due to lower Laurel Mountain Midstream, LLC (Laurel Mountain), Aux Sable and Discovery equity earnings at Midstream primarily reflecting lower operating results, partially offset by an increase in equity earnings at Gas Pipeline primarily resulting from the acquisition of an additional 24.5 percent interest in Gulfstream in May 2011.


Table of Contents

Management's Discussion and Analysis (Continued)

Results of Operations - Segments

Gas Pipeline

Overview of Nine Months Ended September 30, 2012

Gas Pipeline's strategy to create value focuses on maximizing the utilization of our pipeline capacity by providing high quality, low cost transportation of natural gas to large and growing markets.

Gas Pipeline's interstate transmission and storage activities are subject to regulation by the Federal Energy Regulatory Commission (FERC) and as such, our rates and charges for the transportation of natural gas in interstate commerce, and the extension, expansion or abandonment of jurisdictional facilities and accounting, among other things, are subject to regulation. The rates are established through the FERC's ratemaking process. Changes in commodity prices and volumes transported have little near-term impact on revenues because the majority of cost of service is recovered through firm capacity reservation charges in transportation rates.

Outlook for the Remainder of 2012

Expansion projects

Constitution Pipeline

In April 2012, we began the FERC pre-filing process for a new interstate gas pipeline project. We currently own a 75 percent interest in the project and will be the operator. The new 120-mile Constitution Pipeline will connect our gathering system in Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems. The total cost of the project is estimated to be $748 million. We plan to place the project into service in March 2015, with an expected capacity of 650 thousand dekatherms per day (Mdth/d). The pipeline is fully subscribed with two shippers. We expect to file a FERC application in January 2013.

Mid-South

In August 2011, we received approval from the FERC to upgrade compressor facilities and expand our existing natural gas transmission system from Alabama to markets as far north as North Carolina. The cost of the project is estimated to be $205 million. We placed the first phase of the project into service in September 2012, which increased capacity by 95 Mdth/d. We plan to place the second phase of the project into service in June 2013, which will increase capacity by an additional 130 Mdth/d.

Mid-Atlantic Connector

In July 2011, we received approval from the FERC to expand our existing natural gas transmission system from North Carolina to markets as far downstream as Maryland. The cost of the project is estimated to be $55 million and is expected to increase capacity by 142 Mdth/d. We plan to place the project into service in November 2012.

Northeast Supply Link

In December 2011, we filed an application with the FERC to expand our existing natural gas transmission system from the Marcellus Shale production region on the Leidy Line to various delivery points in New York and New Jersey. The cost of the project is estimated to be $341 million and is expected to increase capacity by 250 Mdth/d. We plan to place the project into service in November 2013.


Table of Contents

Management's Discussion and Analysis (Continued)

Eminence Storage Field Leak

On December 28, 2010, we detected a leak in one of the seven underground natural gas storage caverns at our Eminence Storage Field in Mississippi. Due to the leak and related damage to the well at an adjacent cavern, both caverns are out of service. In addition, two other caverns at the field, which were constructed at or about the same time as those caverns, have experienced operating problems, and we have determined that they should also be retired. The event has not affected the performance of our obligations under our service agreements with our customers.

In September 2011, we filed an application with the FERC seeking authorization to abandon these four caverns. We estimate the total abandonment costs, which will be capital in nature, will be approximately $92 million, which is expected to be spent through the end of 2013. As of September 30, 2012, we have incurred . . .

  Add WPZ to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for WPZ - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.