31-10-2012

Williams partners signs agreement to purchase Williams' Gulf olefins business

Williams Partners and Williams 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. 

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.

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.