Williams Partners L.P. (WPZ) and Williams Cos. (WMB) will pursue an agreement for Williams Partners to acquire Williams' 83.3% interest in the olefins-production facility in Geismar, La., in a deal that will bring more certainty to the energy company's cash flows.
"Adding the Geismar olefins-production facilities to Williams Partners' portfolio would immediately reduce the partnership's exposure to the ethane market by nearly 70% and it would nearly eliminate it by 2014," Williams Partners Chief Executive, Alan Armstrong said.
Separately, Williams lowered its earnings outlook for 2012 and 2013, mainly due to commodity prices. It now expects earnings $1.05 to $1.25 for 2012 and earnings of $1.20-$1.55 for 2013, down from its April view of between $1.20 to $1.60 for 2012, and between $1.35 and $1.75 for 2013.
It also said it expects second quarter per-share earnings to be about 21 cents, down from 39 cents in the first quarter and 29 cents in the second quarter last year, noting that "an unexpectedly sharp decline in natural-gas-liquids margins" in May and June at Williams Partners was the cause. Analysts polled by Thomson Reuters were looking for 33 cents a share.
Shares of Williams were down 4.5% to $29.90 in recent premarket trading, while shares of Williams Partners were down 2.2% to $53.99. Williams' stock is up 16% so far this year, while Williams Partner's stock is down 8% so far this year.
Williams Partners noted that its cash flows are exposed to the market for ethane, which is projected to experience periods of volatility as demand infrastructure lags new supplies from shale-gas production. It said ethylene demand is expected to remain strong as ethylene is significantly less expensive than crude-oil based feedstock.
The Geismar facility is a light-end natural-gas liquid cracker with volumes of 37,000 barrels per day of ethane and 3,000 barrels per day of propane and an annual production of 1.35 billion pounds of ethylene. Williams Partners said the facility's annual ethylene production capacity will grow by 600 million pounds to 1.95 billion pounds by late 2013 as a result of a $350 to $400 million expansion that is currently under way.
Williams Partners will fund the transaction largely with the issuance of limited-partner units to Williams. Williams currently owns 68% of Williams Partners.
Pipeline companies in the U.S. are undergoing a wave of acquisitions and expansion as they seek to adapt to the new geography of energy production brought about by shale production. Williams Partners in March unveiled a $2.5 billion deal to acquire Caiman Eastern Midstream LLC, which has midstream facilities in the Marcellus Shale, a major unconventional shale-energy field that underlies several Northeastern states.
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