WMZ Williams Pipeline Partners LP Common Units Representing Limited Partner Interests

TULSA, Okla., July 29 /PRNewswire-FirstCall/ -- Williams Partners L.P. (NYSE: WPZ) today announced unaudited second-quarter 2010 net income of $225 million, compared with second-quarter 2009 net income of $215 million. Net income per common limited-partner unit for second-quarter 2010 was $0.66, compared with $0.48 per unit for second-quarter 2009.

Year-to-date through June 30, Williams Partners reported net income of $538 million, compared with $398 million for the same period in 2009.  Net income per common LP unit for the first half of the year was $1.24, compared with $0.84 per unit in the first half of 2009.

Higher natural gas liquid (NGL) margins in the midstream business drove the increase in net income for the second-quarter and year-to-date periods. Results from the gas pipeline business were steady as expected in both periods. There is a more detailed discussion of the midstream and gas pipeline business results in the business segment performance section below.  Higher interest expense associated with the asset contribution transactions with Williams (NYSE: WMB), which closed in the first quarter, substantially offset the improved operating results in the midstream business in the second quarter.  

The results throughout this release have been recast to reflect the first-quarter 2010 asset contribution transactions.

In the recasting of the partnership's net income, all of the contributed assets' net income occurring prior to the closing date was allocated to Williams.

Asset Contributions Continue to Drive Substantial Increases in Distributable Cash Flow

For second-quarter 2010, Williams Partners' distributable cash flow attributable to partnership operations was $316 million, compared with $31 million for second-quarter 2009.  Year-to-date through June 30, DCF attributable to partnership operations was $589 million, compared with $61 million for the same period in 2009.

The continued substantial increases in DCF attributable to partnership operations are due to the growth of the partnership via the first-quarter 2010 asset contribution transactions.

Partnership to Increase Ownership in Overland Pass, Plans New Cryogenic Processing Facility in Colorado

Last week Williams Partners announced that it had notified ONEOK Partners, L.P. (NYSE: OKS) that it is exercising its option to increase its ownership of Overland Pass Pipeline Company, LLC to 50 percent.  Williams Partners currently owns 1 percent of the joint venture, while ONEOK Partners owns the remaining 99 percent.

The previously announced option price is estimated to be approximately $425 million.  Subject to regulatory approvals, Williams Partners expects to close the transaction in the third quarter with an effective date of June 30, 2010. Williams Partners plans to fund the purchase price with a combination of cash on hand and/or borrowings from its existing credit facility.

The Overland Pass Pipeline includes a 760-mile NGL pipeline from Opal, Wyo., to the Mid-Continent NGL market center in Conway, Kan., along with 150- and 125-mile extensions into the Piceance and Denver-Joules Basins in Colorado, respectively.  Williams Partners' equity NGL volumes from its two Wyoming plants and its Willow Creek facility in Colorado are dedicated for transport on Overland Pass Pipeline under a long-term shipping agreement.

Williams Partners is also planning a significant expansion of its cryogenic processing capacity in the Piceance Basin.  The partnership intends to pursue construction of a 450 MMcf/d cryogenic gas processing facility to be located at the Williams Parachute, Colo., complex.  The new facility will be capable of recovering up to 25,000 barrels per day of NGLs.  The new Parachute facility is expected to be in service in 2013 and will process Williams' natural gas production in the Piceance Basin, which currently exceeds the processing capacity at Williams Partners' Willow Creek facility.   The proposed expansion of the Parachute plant is subject to certain final approvals.  

CEO Perspective

"Williams Partners continued its strong 2010 performance in the second quarter, as higher NGL margins in the midstream business drove our improved operating results," said Steve Malcolm, chief executive officer of the general partner of Williams Partners.  "We increased our distribution for the second consecutive quarter and our cash distribution coverage ratio remained robust at 1.43x.

"We are also taking advantage of the size and scope of Williams Partners in seizing strategic growth opportunities, such as increasing our stake in Overland Pass and the new cryogenic processing facility at the Parachute plant," Malcolm said.

"In addition to these growth projects, we continue to be actively engaged in many business development opportunities."

Earnings Guidance Updated, Capital Expenditure Guidance Increased

The chart below shows Williams Partners' 2010-12 commodity price assumptions and the related outlook for its financial results for 2010-12.  Earnings guidance for 2010 has been updated to reflect lower expected NGL margins and the delay in the startup of Perdido Norte.  Earnings guidance for 2011-12 is unchanged from previous guidance.

Capital expenditure guidance has been increased for 2010-11 to reflect the partnership's acquisition of the Overland Pass interest and its planned expansion project at the Parachute gas processing facility.

While these new investments will be contributing profitability during the 2010-12 guidance period, the positive earnings effect will be most significant after 2012.  During the guidance period, the partnership expects that profitability from the new investments will be largely offset by other factors, including the projected negative effect of a six-month moratorium on deepwater drilling and delays in the startup of Perdido Norte.

Business Segment Performance

Williams Partners' operations are reported through two business segments, Gas Pipeline and Midstream Gas & Liquids.

Gas Pipeline includes the partnership's interstate natural gas pipelines and pipeline joint venture investments. Gas Pipeline also includes the partnership's ownership interest in Williams Pipeline Partners L.P. (NYSE: WMZ), a gas-pipeline focused master limited partnership formed in 2007.  Midstream Gas & Liquids includes the partnership's natural gas gathering, treating and processing business and is comprised of several wholly-owned and partially-owned subsidiaries.

Gas Pipeline

Williams Partners owns interests in three major interstate natural gas pipeline systems – Transco, Northwest Pipeline and Gulfstream. Transco and Northwest Pipeline have a combined total annual throughput of approximately 2,700 trillion British Thermal Units of natural gas, which is approximately 12 percent of the natural gas consumed in the United States. Combined peak-day delivery capacity is approximately 12 billion cubic feet per day.

Gas Pipeline reported segment profit of $148 million for second-quarter 2010, compared with $155 million for second-quarter 2009.  

For the first six months of 2010, Gas Pipeline reported segment profit of $317 million, compared with $327 million for the first six months of 2009.

The slight declines in segment profit during second-quarter and year-to-date 2010 periods were due to decreases in other service revenues, partially offset by an increase in transportation revenues from expansion projects placed into service during 2009.  

The gas pipeline business has a significant portfolio of expansion projects to expand its services to key markets over the next several years.  Among those are the Mobile Bay South and 85 North expansions, which were recently placed into service.  The Sundance Trail expansion is also expected to be placed into service during 2010.

The Mobile Bay South expansion includes a new compression facility in Alabama allowing natural gas pipeline transportation service to various southbound delivery points. The cost of the project is estimated to be $34 million. The expansion was placed into service in May 2010, increasing capacity by 253 Mdt/d.

The 85 North project is an expansion of the partnership's existing natural gas transmission system from Alabama to various delivery points as far north as North Carolina. The cost of the project is estimated to be $241 million. Phase I was placed into service in July 2010 and increased capacity by 90 Mdt/d. A second phase is expected to be placed into service in 2011 and will increase capacity by an additional 218 Mdt/d.

Sundance Trail includes approximately 16 miles of 30-inch pipeline between the partnership's existing compressor stations in Wyoming. The project also includes an upgrade to an existing compressor station and is estimated to cost approximately $60 million. The estimated in-service date is November 2010 and will increase capacity by 150 Mdt/d.

Midstream Gas & Liquids

Midstream provides natural gas gathering, treating, and processing; deepwater production handling and oil transportation; and NGL fractionation and storage services.

The business reported segment profit of $198 million for second-quarter 2010, compared with segment profit of $130 million for second-quarter 2009.

The 52-percent increase in segment profit during second-quarter 2010 is primarily the result of higher per-unit NGL margins compared with the recession-driven, low NGL margins in second-quarter 2009.   Higher average NGL prices, partially offset by higher natural gas prices, drove the increase in per-unit NGL margins.

Year-to-date through June 30, Midstream reported segment profit of $443 million, compared with $210 million for the same period in 2009.

The significant increase in year-to-date segment profit is due to much higher per-unit NGL margins in 2010 compared with 2009. Average per-unit NGL margins for the first six months of 2010 were $0.57 per gallon – more than double the average per-unit NGL margin of $0.27 per gallon for the same period in 2009.

The decline in NGL margins from the first quarter to second quarter of 2010 is due primarily to lower equity sales volumes and lower NGL prices, partially offset by lower per-unit gas prices.  Equity sales volumes declined 9 percent in the same period, including the effects of timing of inventory sales, while total NGL production volumes declined 3 percent, including the effects of certain deepwater well shut-ins.

Fee-based revenues at the Willow Creek plant, which began processing Williams' natural gas production in the Piceance Basin in third-quarter 2009, are also higher for the first six months of 2010.  This increase is partially offset by lower deepwater gathering and transportation volumes.

In addition to those mentioned earlier in this news release, the midstream business continues to make progress on a number of organic expansion projects during 2010 and to pursue certain expansion and growth opportunities in its onshore and Gulf of Mexico businesses.

Progress continues on Williams Partners' major expansion projects including additional processing and NGL production facilities at the Echo Springs facility and related gathering system expansions in the Wamsutter area of Wyoming; a gas gathering pipeline in the Marcellus Shale region and additions to the gathering system infrastructure within the partnership's Laurel Mountain Midstream joint venture.

Definitions of Non-GAAP Financial Measures

This press release includes certain financial measures, Recurring Segment Profit and Distributable Cash Flow that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission.

For Williams Partners L.P., Recurring Segment Profit excludes items of income or loss that we characterize as unrepresentative of our ongoing operations. Management believes Recurring Segment Profit provides investors meaningful insight into Williams Partners L.P.'s results from ongoing operations.

For Williams Partners L.P. we define Distributable Cash Flow as net income plus depreciation, amortization and accretion and cash distributions from our equity investments less our earnings from our equity investments, distributions to noncontrolling interests and maintenance capital expenditures. We also adjust for payments and/or reimbursements under an omnibus agreement with Williams and certain non-cash, non-recurring items. Total Distributable Cash Flow is reduced by any amounts associated with operations, which occurred prior to our ownership of the underlying assets to arrive at Distributable Cash Flow attributable to partnership operations.

For Williams Partners L.P. we also calculate the ratio of Distributable Cash Flow attributable to partnership operations to the total cash distributed (cash distribution coverage ratio). This measure reflects the amount of Distributable Cash Flow relative to our cash distribution. We have also provided this ratio calculated using the most directly comparable GAAP measure, net income.

This press release is accompanied by a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. Management uses these financial measures because they are accepted financial indicators used by investors to compare company performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the Partnership's assets and the cash that the business is generating. Neither Recurring Segment Profit nor Distributable Cash Flow are intended to represent cash flows for the period, nor are they presented as an alternative to net income or cash flow from operations. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles.

Today's Analyst Call

Management will discuss the second-quarter results and outlook during a live webcast beginning at 11 a.m. EDT today. Participants are encouraged to access the webcast and slides for viewing, downloading and printing at www.williamslp.com.

A limited number of phone lines also will be available at (888) 634-7543. International callers should dial (719) 325-2269. Replays of the second-quarter webcast in both streaming and downloadable podcast formats will be available for two weeks following the event at www.williamslp.com.

Form 10-Q

The partnership plans to file its Form 10-Q with the Securities and Exchange Commission today. The document will be available on both the SEC and Williams Partners web sites.

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 12 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 84 percent of Williams Partners, including the general-partner interest. More information is available at www.williamslp.com. Go to http://www.b2i.us/irpass.asp?BzID=1296&to=ea&s=0 or http://www.b2i.us/irpass.asp?BzID=1296&to=ea&s=0 to join our email list.

Williams Partners L.P. is a limited partnership formed by The Williams Companies, Inc. (Williams). Our reports, filings, and other public announcements may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  You typically can identify forward-looking statements by various forms of words such as "anticipates," "believes," "seeks," "could," "may," "should," "continues," "estimates," "expects," "forecasts," "intends," "might," "goals," "objectives," "targets," "planned," "potential," "projects," "scheduled," "will," or other similar expressions. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management and include, among others, statements regarding:

• Amounts and nature of future capital expenditures;
• Expansion and growth of our business and operations;
• Financial condition and liquidity;
• Business strategy;
• Cash flow from operations or results of operations;
• The levels of cash distributions to unitholders;
• Seasonality of certain business segments; and
• Natural gas and natural gas liquids prices and demand.

Forward-looking statements are based on numerous assumptions, uncertainties and risks that could cause future events or results to be materially different from those stated or implied in this announcement. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:

• Whether we have sufficient cash from operations to enable us to maintain current levels of cash distributions or to pay the minimum quarterly distribution following establishment of cash reserves and payment of fees and expenses, including payments to our general partner;
• Availability of supplies (including the uncertainties inherent in assessing and estimating future natural gas reserves), market demand, volatility of prices, and the availability and cost of capital;
• Inflation, interest rates and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on our customers and suppliers);
• The strength and financial resources of our competitors;
• Development of alternative energy sources;
• The impact of operational and development hazards;
• Costs of, changes in, or the results of laws, government regulations (including proposed climate change legislation and/or potential additional regulation of drilling and completion of wells), environmental liabilities, litigation and rate proceedings;
• Our allocated costs for defined benefit pension plans and other postretirement benefit plans sponsored by our affiliates;
• Changes in maintenance and construction costs;
• Changes in the current geopolitical situation;
• Our exposure to the credit risks of our customers;
• Risks related to strategy and financing, including restrictions stemming from our debt agreements, future changes in our credit ratings and the availability and cost of credit;
• Risks associated with future weather conditions;
• Acts of terrorism; and
• Additional risks described in our filings with the Securities and Exchange Commission (SEC).

Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to causing our actual results to differ, the factors listed above may cause our intentions to change from those statements of intention set forth in this report. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.

Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. Investors are urged to closely consider the disclosures and risk factors in our annual report on Form 10-K filed with the SEC on February 25, 2010, and our quarterly reports on Form 10-Q available from our offices or from our website at www.williamslp.com.

SOURCE Williams Partners L.P.