Williams Partners (NYSE:WPZ) and Williams (NYSE:WMB) today announced an
agreement for Williams Partners to acquire Williams' approximately
83-percent undivided interest in the Geismar olefins production
facility, as well as Williams' refinery-grade propylene splitter for
$2.264 billion and pipelines in the Gulf region, for $100 million.
Additionally, Williams Partners will be responsible for the completion
of the ongoing expansion of the Geismar facility projected to cost $270
million and additional pipelines projected to cost approximately $160
Williams also agreed to temporarily waive approximately $16 million per
quarter of general partner incentive distribution rights (IDRs) until
the later of Dec. 31, 2013 or 30 days after the Geismar plant expansion
is operational. Williams estimates the foregone IDRs will last
approximately five quarters, which would total $80 million.
The table below presents a comparison of expected post-expansion segment
profit plus DD&A for 2014 to the transaction price for these assets.
2014 is expected to be the first full year of operations at the Geismar
facility following the expansion, expected to be completed in late 2013.
As a result, 2014 is more representative of the Geismar facility's
long-term earnings and cash flow generation capacity.
|Gulf Olefins Business: Multiple Calculation|
|USD in millions, except multiple|
2014 Seg Prof +
The partnership expects the addition of olefins production to its
business would bring more certainty to cash flows that today are exposed
to the market for ethane, which is projected to experience periods of
volatility as feedstock demand for infrastructure lags new supplies from
shale-gas production. North American ethylene demand is expected to
remain strong, given its continuing advantaged cost compared with
ethylene derived from crude-oil based feedstock.
Williams Partners expects that the addition of olefins production to its
business via this acquisition will be accretive to distributable cash
flow, on a per-unit basis for the partnership's unitholders. Williams
Partners plans to fund the acquisition with the issuance to Williams of
42.8 million Williams Partners limited-partner units, $25 million in
cash and an increase to the general partner's capital account to
maintain Williams' 2-percent general-partner interest. The transaction
is expected to close in early November.
Williams will gain increased distributions from Williams Partners for
the limited-partner units it will receive as consideration for the
transaction. The increased distributions from Williams Partners support
Williams' dividend growth strategy.
Williams currently owns approximately 66 percent of Williams Partners,
including the general-partner interest. Following the closing of this
transaction Williams will own approximately 70 percent of Williams
Partners, including the general-partner interest.
"The addition of the Geismar facility to Williams Partners' portfolio
immediately reduces the partnership's exposure to the over-supplied
ethane markets by nearly 70 percent and eliminates it by 2014, while
increasing our ability to produce globally marketed ethylene," said Alan
Armstrong, chief executive officer of the general partner of Williams
Partners. "Bringing this natural hedge to Williams Partners makes it
unique among similarly situated MLPs. In addition, it provides strong
support for our continuing distribution growth."
Located south of Baton Rouge, La., the Geismar facility is a light-end
natural gas liquid (NGL) cracker with current inlet volumes of 39,000
barrels per day (bpd) of ethane and 3,000 bpd of propane and annual
production of 1.35 billion pounds of ethylene. With the benefit of a
significant expansion under way and scheduled for completion by late
2013, the facility's consumption of ethane will increase to a maximum of
57,000 bpd and annual ethylene production capacity will grow by 600
million pounds to 1.95 billion pounds. Williams Partners' overall
undivided ownership interest following the expansion will be
approximately 88 percent.
Post-expansion segment profit, plus DD&A, for both the Geismar facility
and the pipelines is projected to grow from $270 million in 2013 to $600
million by the end of 2014. The primary drivers of this increase in 2014
earnings and cash flows are the first full-year of expansion volumes, an
assumed increase in spot ethylene prices and increased sales at these
assumed higher ethylene spot prices.
The pipelines included in the transaction include a 212-mile ethane
pipeline between Lake Charles and Geismar, a three-mile propane
pipeline, a 50-mile pipeline between Port Arthur and Lake Charles, and
60 miles of product pipelines in and around the Houston Ship Channel.
The Internal Revenue Service recently released a private letter ruling
which stated that income derived from processing NGLs into olefins at
the Geismar facility and the related marketing, transporting and storing
of olefins constitute qualifying income for Williams Partners L.P.
About Williams Partners L.P. (NYSE: WPZ)
Williams Partners L.P. is a leading diversified master limited
partnership focused on natural gas transportation; gathering, treating,
and processing; storage; natural gas liquid (NGL) fractionation; and oil
transportation. The partnership owns interests in three major interstate
natural gas pipelines that, combined, deliver 14 percent of the natural
gas consumed in the United States. The partnership's gathering and
processing assets include large-scale operations in the U.S. Rocky
Mountains and both onshore and offshore along the Gulf of Mexico.
Williams (NYSE: WMB) owns approximately 66 percent of Williams Partners,
including the general-partner interest. More information is available at www.williamslp.com.
About Williams (NYSE: WMB)
Williams is one of the leading energy infrastructure companies in North
America. It owns interests in or operates 15,000 miles of interstate gas
pipelines, 1,000 miles of NGL transportation pipelines, and more than
10,000 miles of oil and gas gathering pipelines. The company's
facilities have daily gas processing capacity of 6.6 billion cubic feet
of natural gas and NGL production of more than 200,000 barrels per day.
Williams owns approximately 66 percent of Williams Partners L.P. (NYSE:
WPZ), one of the largest diversified energy master limited partnerships.
Williams Partners owns most of Williams' interstate gas pipeline and
domestic midstream assets. The company's headquarters is in Tulsa, Okla.
This press release includes a reference to distributable cash flow,
which is a non-GAAP financial measure.Its nearest GAAP financial
measure is net income. For Williams Partners L.P. we define
distributable cash flow as net income plus depreciation and amortization
and cash distributions from our equity investments less our earnings
from our equity investments, distributions to non-controlling interests
and maintenance capital expenditures. We also adjust for payments and/or
reimbursements under omnibus agreements with Williams and certain other
items. Management uses this financial measure because it is an accepted
financial indicator used by investors to compare company performance and
provides investors an enhanced perspective of the operating performance
of the Partnership's assets and the cash that the business is generating.
Portions of this document may constitute "forward-looking statements"
as defined by federal law. Although the company believes any such
statements are based on reasonable assumptions, there is no assurance
that actual outcomes will not be materially different. Any such
statements are made in reliance on the "safe harbor" protections
provided under the Private Securities Reform Act of 1995. Additional
information about issues that could lead to material changes in
performance is contained in the company's annual reports filed with the
Securities and Exchange Commission.
Julie Gentz, 918-573-3053
John Porter, 918-573-0797