TULSA, Okla.--()--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 million.
“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”
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 +
|Geismar Plant||$2,264||$270||$570||4.4 x|
|Product Pipelines||100||160||30||8.7 x|
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.