Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Williams Partners L.P. (NYSE:WPZ)

Q2 2011 Earnings Call

August 9, 2011 11:00 AM ET

Executives

Sharna Reingold – Head, IR

Alan Armstrong – President and CEO

Rory Miller – President, Midstream

Randall Barnard – SVP, Gas Pipeline

Analysts

Sharon Lui – Wells Fargo Advisors LLC

Ted Durbin – Goldman Sachs & Co.

Operator

Good day, everyone and welcome to the Williams Partners L.P. Second Quarter 2011 Earnings Release Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I’d like to turn the conference over to Sharna Reingold, Director of Investor Relations. Please go ahead.

Sharna Reingold

Thank you, and good morning. Welcome to the Williams Partners Second quarter 2011 earnings call. As always, thank you for the interest in the company.

As you know, we released our results from August 3rd after the market close. Alan Armstrong, our Chairman and CEO has some commentary about our results. His audio commentary and slides are available on our web site williamslp.com. So we will not be reviewing our slides this morning.

In a minute, Alan Armstrong will make some brief remarks and we’ll open the line for questions. Be aware that Don Chappel, Rory Miller, and Randy Barnard are also available for any questions.

Before I turn it over to Alan, please note that all the slides are available on our website williamslp.com. Please read slides two and three. Within the presentation, there are forward-looking statements about future expectations and operations that are subject to various risks and uncertainties which are disclosed on those slides.

Also included in the presentation are various non-GAAP numbers that have been reconciled back to measures included in Generally Accepted Accounting Principles. Those reconciliations, schedules and related information are included in the slides available on our website williamslp.com.

With that, I’ll turn it over to Alan.

Alan Armstrong

Great. Thank you, Sharna, and good morning everybody. First of all, I’ll just hit on the highlights here really quickly and then we’ll turn it over for questions. Fantastic quarter for WPZ, a 26% increase in our distributable cash flow attributable to our partnership operations versus second quarter a year ago and continued very strong coverage ratio right at about 1.4 and that’s despite our higher maintenance capital, typically goes a little higher during our second and third quarter when we can actually get a lot of the work performed.

And so, despite kind of that seasonal increase in maintenance activity, our coverage ratio is remaining strong. We are excited about that.

A lot of fee revenues really started to kick-in here in the second quarter as well and that really came from the Marcellus Shale growth, the Piceance Basin acquisition, the Overland Pass Pipeline acquisition and so all of those acquisitions that we did in the second half of 2010 really kicked in here as well. We also saw volume starting to grow there with the Perdido Norte volumes in the second quarter and we expect that continue to grow and we expect volumes continue to grow rapidly in the Marcellus as well.

So, really as we would have expected, additionally we were excited to see our volumes rebound from the first quarter where we had a lot of weather outages and we reported we expected that to come back and we certainly saw that in a big way here in the second quarter. And so, we continue to increase our distributions and now at a 9% increase compared to our second quarter 2010 distribution and we continue to expect that pace to increase at a 6% to 10% range.

So our business is very strong, very clear line of sight to our expansion opportunities within the business and really just couldn’t be a much better time to be in the business. Despite some of the near-term issues we’ve seen with the crude market here in the last several days, we still are seeing strength in the NGL market and in the olefins markets. And so, we continue to be very excited about the balance of the year here for WPZ.

And with that, I’ll turn it over for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we’ll start with Sharon Lui from Wells Fargo.

Sharon Lui – Wells Fargo Advisors LLC

Hi, good morning.

Alan Armstrong

Good morning, Ms. Lui.

Sharon Lui – Wells Fargo Advisors LLC

Maybe if you could just touch on the decrease in the guidance for Midstream CapEx for 2011?

Alan Armstrong

Yeah, Rory will take that.

Rory Miller

Yeah, this is Rory. Driven by two things. About $100 million of that was a slowdown in the ability to get the capital employed in the Marcellus, nothing amiss there in terms of the production or the wells or the activity. It’s just a tough environment to construct in. It’s going a little slower than planned. The good news is the well performance is excellent either at or above our expectation. So, the resource is good, it’s strong. We just had slower construction than we planned. In fact, the first five months we saw a lot of rain and that had a pretty significant impact on our construction.

So, not any reduction in CapEx in total but just a pushing of about $100 million into the 2012 time period and then we had another unidentified business development project for about $50 million that again still looks very favorable but that was pushed into 2012 as more likely time of expenditure.

Sharon Lui – Wells Fargo Advisors LLC

Okay, great. And then maybe if you could just touch on your Gulfstar investment, maybe talk about the potential costs of that project and expected returns?

Rory Miller

Yeah, that project is just under $1 billion, if you include the interconnecting pipelines that will be tying into our oil and gas systems that currently exist in the deepwater Gulf of Mexico. Return expectations there are higher than what we probably would look for onshore. I am not going to specifically state a number. But, we kind of have a combination of things. There’s probably a lot more risk reducing provisions in those contracts than what we would see in onshore. And then, we also have a higher return expectation as well. So, we think, on balance, it’s a good risk reward point to be at and hopefully that helps a bit.

Sharon Lui – Wells Fargo Advisors LLC

Okay. And for that project, are you waiting for, I guess, any additional commitments or regulatory approvals or is this project a definite go ahead?

Alan Armstrong

The only thing we are waiting there on is the signing of the definitive agreements. Now we have an agreement to proceed with the customer there. And so the project is being engineered. We’ve placed orders for long lead time items. We’ve got contracts signed to get the hole fabricated, to get the top sides fabricated, and other major contracts are being put in place, but we won’t have a complete green light, I guess, until the definitive agreements are signed, but that’s expected here probably in the third quarter.

Sharon Lui – Wells Fargo Advisors LLC

Okay, great. Thank you.

Operator

Moving now, we will take our next question from Ted Durbin from Goldman Sachs.

Ted Durbin – Goldman Sachs & Co.

Thanks. My first question is on Northwest Pipeline and specifically you had the Ruby Pipeline just started up and Bison as well. I’m wondering how much competition you’re going to see or you’re expecting to see for Northwest Pipeline and maybe impacts on margin there?

Randall Barnard

Thanks, Ted. This is Randy Barnard. We actually are not seeing any impacts from Ruby as far as competing for markets. They do not – Ruby does not serve directly any Northwest Pipeline markets with the exception of Northern Nevada market. And right now, the customers are – the Northwest Pipeline customers telling us they do not plan on turning back any Northwest Pipeline capacity. So long-term impacts, we’re not seeing anything like that.

What we are seeing is Canadian gas supplies that are priced to move right now, which brings up really the value to our customer in Northwest Pipeline where they have multiple supply basins upon which to drop and if they find a bargain such as they’re finding with Canadian gas right now. It makes the capacity on Northwest Pipeline even more valuable to them because they can play that arbitrage versus the Rockies. Does that respond to your question?

Ted Durbin – Goldman Sachs & Co.

Yeah, it does. I had just thought from a supply standpoint you might be getting less, but it sounds like you’re just more focused on the demand side there. And I would have thought that with more pipes come out of there, you might see some contracting issues, but it sounds like it’s more demand side.

Randall Barnard

Yeah, on the supply side, more specific to that, we have seen supplies from the Rockies drop, but we have seen supplies from Canada raise by an equal amount. So it’s a matter of the customer sourcing from a different location and perhaps we’ll be soaking up some of that supply out of the Rockies. But it’s really all price sensitive and it could swing back the other way and we are equipped to handle it.

Ted Durbin – Goldman Sachs & Co.

Okay, thanks. And then just coming back to the Gulfstar question. I think you had said you’re going to try to find a JV partner there. Do you have any progress there? And then you also said in your comments, I think you’re looking for one or two more projects. Would you anticipate trying to joint venture with those as well?

Alan Armstrong

Yeah. Thanks for that question. The number that I have stated was 100% number in my comments a moment ago. We are still intending on taking on a joint venture partner there, and those discussions are going well. Probably won’t close that deal until we have the definitive documents with the customer sign those. So, no change from what we reported several quarters ago.

And on the other two projects that are still unidentified, but I think they were classified as Gulfstar projects out in the potential part of the pie chart. We would likely be taking the same approach with those as well.

Ted Durbin – Goldman Sachs & Co.

Okay, great. Those are my questions. Thank you.

Alan Armstrong

Thanks, Ted.

Operator

And at this time, it appears there are no further questions. I will turn the conference back over to our speakers.

Alan Armstrong

Okay, great. Well, thank you very much. As I’ve said, we really are excited about the way we are positioned in this market with a strong coverage ratio we’ve got, the strong fundamentals and demand for our infrastructure out there today. So feeling very good about how WPZ is positioned both in the near-term and in the long-term. And look forward to continued growth. So thanks for your attention and your questions this morning and we will be speaking to you soon. Thanks.

Operator

Thank you. That will conclude today’s conference. We thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Williams Partners' CEO Discusses Q2 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts