10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009 |
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to |
Commission file number 1-32599
WILLIAMS PARTNERS L.P.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE
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20-2485124 |
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(State or other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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ONE WILLIAMS CENTER |
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TULSA, OKLAHOMA
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74172-0172 |
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(Address of principal executive offices)
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(Zip Code) |
(918) 573-2000
(Registrants telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter
period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated
filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange
Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The registrant had 52,777,452 common units outstanding as of April 29, 2009.
WILLIAMS PARTNERS L.P.
INDEX
FORWARD-LOOKING STATEMENTS
Certain matters contained in this report include 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. These statements discuss our expected future results based on
current and pending business operations.
All statements, other than statements of historical facts, included in this report which
address activities, events or developments that we expect, believe or anticipate will exist or may
occur in the future, are forward-looking statements. Forward-looking statements can be identified
by various forms of words such as anticipates, believes, could, may, should, continues,
estimates, expects, forecasts, might, planned, potential, projects, scheduled or
similar expressions. These forward-looking statements include, among others, statements regarding:
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Amounts and nature of future capital expenditures; |
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Expansion and growth of our business and operations; |
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Financial condition and liquidity; |
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Business strategy; |
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Cash flow from operations and results of operations; |
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The levels of cash distributions to unitholders; |
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Seasonality of certain business segments; and |
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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 report. 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. The reader should carefully consider
the risk factors discussed below in addition to the other information in this report. If any of the
following risks were actually to occur, our business, results of operations and financial condition
could be materially adversely affected. In that case, we might not be able to pay distributions on
our common units, the trading price of our common units could decline and unitholders could lose
all or part of their investment. Many of the factors that
1
could adversely affect our business, results of operations and financial condition are beyond
our ability to control or predict. Specific factors which could cause actual results to differ from
those in the forward-looking statements include:
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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; |
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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; |
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Inflation, interest rates and general economic conditions (including the current
economic slowdown and the disruption of global credit markets and the impact of these
events on our customers and suppliers); |
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The strength and financial resources of our competitors; |
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Development of alternative energy sources; |
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The impact of operational and development hazards; |
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Costs of, changes in, or the results of laws, government regulations (including
proposed climate change legislation), environmental liabilities, litigation and rate
proceedings; |
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Changes in maintenance and construction costs; |
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Changes in the current geopolitical situation; |
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Our exposure to the credit risks of our customers; |
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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; |
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Risks associated with future weather conditions; |
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Acts of terrorism; and |
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Additional risks described in our filings with the Securities and Exchange
Commission. |
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 and referred to
below 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.
Because forward-looking statements involve risks and uncertainties, we caution that there are
important factors, in addition to those listed above, that may cause actual results to differ
materially from those contained in the forward-looking statements. For a detailed discussion of
those factors, see Part I, Item 1A. Risk Factors in our annual report on Form 10-K for the year
ended December 31, 2008, and Part II, Item 1A. Risk Factors of this quarterly report on Form
10-Q.
2
PART I FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
WILLIAMS PARTNERS L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per-unit amounts)
(Unaudited)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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Revenues: |
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Product sales: |
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Affiliate |
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$ |
30,872 |
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$ |
78,122 |
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Third-party |
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2,291 |
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4,221 |
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Gathering and processing: |
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Affiliate |
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10,610 |
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8,790 |
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Third-party |
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47,255 |
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46,210 |
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Storage |
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8,361 |
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7,333 |
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Fractionation |
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2,557 |
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3,292 |
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Other |
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3,522 |
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2,394 |
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Total revenues |
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105,468 |
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150,362 |
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Costs and expenses: |
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Product cost and shrink replacement: |
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Affiliate |
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8,866 |
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22,033 |
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Third-party |
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11,296 |
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30,065 |
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Operating and maintenance expense (excluding depreciation): |
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Affiliate |
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11,759 |
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23,133 |
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Third-party |
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28,147 |
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23,951 |
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Depreciation, amortization and accretion |
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11,184 |
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11,226 |
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General and administrative expense: |
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Affiliate |
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11,587 |
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9,876 |
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Third-party |
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893 |
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928 |
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Taxes other than income |
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2,436 |
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2,505 |
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Other expense net |
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1,679 |
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333 |
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Total costs and expenses |
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87,847 |
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124,050 |
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Operating income |
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17,621 |
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26,312 |
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Equity earnings-Wamsutter |
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15,321 |
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21,194 |
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Discovery investment income |
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812 |
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13,621 |
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Interest expense |
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(15,116 |
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(17,673 |
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Interest income |
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34 |
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175 |
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Net income |
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$ |
18,672 |
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$ |
43,629 |
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Allocation of net income for calculation of earnings per unit: |
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Net income |
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$ |
18,672 |
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$ |
43,629 |
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Allocation of net income (loss) to general partner |
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(372 |
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5,981 |
(a) |
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Allocation of net income to limited partners |
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$ |
19,044 |
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$ |
37,648 |
(a) |
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Basic and diluted net income per limited partner unit: |
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Common units |
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$ |
0.36 |
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$ |
0.71 |
(a) |
Subordinated units |
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$ |
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$ |
0.71 |
(a) |
Weighted average number of units outstanding: |
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Common units |
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52,777,452 |
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49,005,497 |
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Subordinated units |
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3,769,231 |
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(a) |
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Retrospectively adjusted as discussed in Note 2. |
See accompanying notes to consolidated financial statements.
3
WILLIAMS PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
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March 31, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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(In thousands) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
77,287 |
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$ |
116,165 |
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Accounts receivable: |
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Trade |
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17,750 |
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16,279 |
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Affiliate |
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16,001 |
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11,652 |
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Other |
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1,390 |
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2,919 |
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Product imbalance |
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3,926 |
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6,344 |
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Prepaid expense |
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9,568 |
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4,102 |
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Reimbursable projects |
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1,166 |
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Other current assets |
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2,565 |
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3,642 |
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Total current assets |
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129,653 |
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161,103 |
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Investment in Wamsutter |
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277,869 |
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277,707 |
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Investment in Discovery Producer Services |
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184,342 |
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184,466 |
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Gross property, plant and equipment |
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1,265,874 |
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1,265,153 |
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Less accumulated depreciation |
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(630,826 |
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(624,633 |
) |
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Property, plant and equipment, net |
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635,048 |
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640,520 |
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Other noncurrent assets |
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27,181 |
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28,023 |
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Total assets |
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$ |
1,254,093 |
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$ |
1,291,819 |
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LIABILITIES AND PARTNERS CAPITAL
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Current liabilities: |
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Accounts payable: |
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Trade |
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$ |
20,410 |
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$ |
22,348 |
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Affiliate |
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12,435 |
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11,122 |
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Product imbalance |
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3,153 |
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8,926 |
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Deferred revenue |
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844 |
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4,916 |
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Accrued interest |
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10,659 |
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18,705 |
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Other accrued liabilities |
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9,734 |
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6,172 |
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Total current liabilities |
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57,235 |
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72,189 |
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Long-term debt |
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1,000,000 |
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1,000,000 |
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Environmental remediation liabilities |
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2,014 |
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2,321 |
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Other noncurrent liabilities |
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13,832 |
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13,699 |
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Commitments and contingent liabilities (Note 7) |
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Partners capital |
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181,012 |
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203,610 |
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Total liabilities and partners capital |
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$ |
1,254,093 |
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$ |
1,291,819 |
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See accompanying notes to consolidated financial statements.
4
WILLIAMS PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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(In thousands) |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
18,672 |
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$ |
43,629 |
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Adjustments to reconcile to cash provided by operations: |
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Depreciation, amortization and accretion |
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11,184 |
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11,226 |
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Equity earnings of Wamsutter |
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(15,321 |
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(21,194 |
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Equity (earnings) losses of Discovery Producer Services |
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3,211 |
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(13,621 |
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Distributions related to equity earnings of Wamsutter |
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15,321 |
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22,703 |
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Distributions related to equity earnings of Discovery Producer Services |
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13,621 |
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Cash provided (used) by changes in assets and liabilities: |
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Accounts receivable |
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(4,291 |
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(20,212 |
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Prepaid expense |
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(5,466 |
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467 |
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Reimbursable projects |
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(1,166 |
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Other current assets |
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1,077 |
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5,282 |
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Accounts payable |
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(625 |
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16,596 |
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Product imbalance |
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(3,355 |
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(835 |
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Accrued liabilities |
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(4,729 |
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(7,214 |
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Deferred revenue |
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(4,155 |
) |
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(3,364 |
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Other, including changes in non-current liabilities |
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2,175 |
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1,120 |
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Net cash provided by operating activities |
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12,532 |
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48,204 |
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INVESTING ACTIVITIES: |
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Capital expenditures |
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(6,972 |
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(11,556 |
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Cumulative distributions in excess of equity earnings of Discovery Producer Services |
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3,179 |
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Cumulative distributions in excess of equity earnings of Wamsutter |
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322 |
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Change in accrued liabilities and accounts payable-capital expenditures |
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(61 |
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(6,574 |
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Proceeds from sale of property, plant and equipment |
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162 |
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Contributions to Wamsutter |
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(485 |
) |
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(22 |
) |
Contributions to Discovery Producer Services |
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(3,086 |
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(437 |
) |
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Net cash used by investing activities |
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(10,120 |
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(15,410 |
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FINANCING ACTIVITIES: |
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Distributions to unitholders |
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(41,617 |
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(35,283 |
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Proceeds from sale of common units |
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28,992 |
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Redemption of common units from general partner |
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(28,992 |
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Contributions per omnibus agreement |
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327 |
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|
771 |
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Other |
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|
76 |
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Net cash used by financing activities |
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(41,290 |
) |
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(34,436 |
) |
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Decrease in cash and cash equivalents |
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|
(38,878 |
) |
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|
(1,642 |
) |
Cash and cash equivalents at beginning of period |
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|
116,165 |
|
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|
36,197 |
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Cash and cash equivalents at end of period |
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$ |
77,287 |
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$ |
34,555 |
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See accompanying notes to consolidated financial statements.
5
WILLIAMS PARTNERS L.P.
CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
(In thousands)
(Unaudited)
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Limited |
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Total |
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Partners |
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General |
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Partners' |
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Common |
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Partner |
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Capital |
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Balance January 1, 2009 |
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$ |
1,619,954 |
|
|
$ |
(1,416,344 |
) |
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$ |
203,610 |
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Net income |
|
|
11,772 |
|
|
|
6,900 |
|
|
|
18,672 |
|
Cash distributions |
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(33,513 |
) |
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(8,104 |
) |
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(41,617 |
) |
Contributions pursuant to the omnibus agreement |
|
|
|
|
|
|
327 |
|
|
|
327 |
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Other |
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|
20 |
|
|
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|
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20 |
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|
|
|
|
|
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|
|
Balance March 31, 2009 |
|
$ |
1,598,233 |
|
|
$ |
(1,417,221 |
) |
|
$ |
181,012 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
WILLIAMS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation
Unless the context clearly indicates otherwise, references in this report to we, our, us
or similar language refer to Williams Partners L.P. and its subsidiaries. Unless the context
clearly indicates otherwise, references to we, our, and us include the operations of
Wamsutter LLC (Wamsutter) and Discovery Producer Services LLC (Discovery) in which we own interests
accounted for as equity investments that are not consolidated in our financial statements. When we
refer to Wamsutter or Discovery by name, we are referring exclusively to their businesses and
operations.
We are principally engaged in the business of gathering, transporting, processing and treating
natural gas and fractionating and storing natural gas liquids (NGL). Operations of our businesses
are located in the United States and are organized into three reporting segments: (1) Gathering and
Processing West, (2) Gathering and Processing Gulf and (3) NGL Services. Our Gathering and
Processing West segment includes the Four Corners gathering and processing operations and our
equity investment in Wamsutter. Our Gathering and Processing Gulf segment includes the Carbonate
Trend gathering pipeline and our 60% ownership interest in Discovery. Our NGL Services segment
includes the Conway fractionation and storage operations.
The accompanying interim consolidated financial statements do not include all the notes in our
annual financial statements and, therefore, should be read in conjunction with the audited
consolidated financial statements and notes thereto included in our Form 10-K, filed February 26,
2009, for the year ended December 31, 2008. The accompanying consolidated financial statements
include all normal recurring adjustments that, in the opinion of management, are necessary to
present fairly our financial position at March 31, 2009, and results of operations for the three
months ended March 31, 2009 and 2008 and cash flows for the three months ended March 31, 2009 and
2008. We eliminated all intercompany accounts and transactions and reclassified certain amounts to
conform to the current classifications.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Note 2. Recent Accounting Standards
In March 2008, the Financial Accounting Standards Board (FASB) ratified the decisions reached
by the Emerging Issues Task Force (EITF) with respect to EITF Issue No. 07-4, Application of the
Two-Class Method under FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships.
EITF Issue No. 07-4 states, among other things, that the calculation of earnings per unit should
not reflect an allocation of undistributed earnings to the incentive distribution right (IDR)
holders beyond amounts distributable to IDR holders under the terms of the partnership agreement.
Previously, under generally accepted accounting principles, we calculated earnings per unit as if
all the earnings for the period had been distributed, which resulted in an additional allocation of
income to the general partner (the IDR holder) in quarterly periods where an assumed incentive
distribution exceeded the actual incentive distribution. Following the adoption of the guidance in
EITF Issue No. 07-4, we no longer calculate assumed incentive distributions. We adopted EITF Issue
No. 07-4 in January 2009, and have retrospectively applied it to all periods presented. The
retrospective application of this guidance decreased the income allocated to the general partner
and increased the income allocated to limited partners for the amount that any assumed incentive
distribution exceeded the actual incentive distribution calculated during that period. Certain of
our historical periods earnings per unit have been revised as a result of this change. Earnings
per unit for the three months ended March 31, 2008 increased from $0.66 per unit to $0.71 per unit.
Adoption of this new standard only impacts the allocation of earnings for purposes of calculating
our earnings per limited partner unit and has no impact on our results of operations, allocation of
earnings to capital accounts, or distributions of available cash to unitholders and our general
partner.
In April 2009, the FASB issued FASB Staff Position FSP FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1) that would
amend FASB Statement No. 107, Disclosures about Fair Value
of Financial Instruments (SFAS No. 107), to require disclosures about the fair value of financial instruments in interim financial
statements as well as in annual financial statements. This FSP applies to all financial instruments
and entities within the scope of SFAS No. 107. An entity is required to disclose the fair value of all
financial instruments, whether recognized or not recognized in the statement of financial position,
along with the related carrying amount. An entity is also required to disclose the method(s) and significant
7
assumptions used to estimate the fair value of financial instruments. This FSP is
effective for interim and annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. This FSP does not require disclosures for
earlier periods presented for comparative purposes at initial adoption. In periods after initial
adoption, this FSP requires comparative disclosures only for periods ending subsequent to initial
adoption. We will adopt the FSP in the second quarter of 2009, resulting in additional fair value
disclosures.
Note 3. Allocation of Net Income and Distributions
The allocation of net income between our general partner and limited partners, as reflected in
the Consolidated Statement of Partners Capital, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Allocation to general partner: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,672 |
|
|
$ |
43,629 |
|
Reimbursable general and administrative costs charged directly to general partner |
|
|
760 |
|
|
|
398 |
|
|
|
|
|
|
|
|
Income subject to 2% allocation of general partner interest |
|
|
19,432 |
|
|
|
44,027 |
|
General partners share of net income |
|
|
2.0 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
General partners allocated share of net income before items directly allocable
to general partner interest |
|
|
388 |
|
|
|
881 |
|
Incentive distributions paid to general partner* |
|
|
7,272 |
|
|
|
4,231 |
|
Direct charges to general partner |
|
|
(760 |
) |
|
|
(398 |
) |
|
|
|
|
|
|
|
Net income allocated to general partner |
|
$ |
6,900 |
|
|
$ |
4,714 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,672 |
|
|
$ |
43,629 |
|
Net income allocated to general partner |
|
|
6,900 |
|
|
|
4,714 |
|
|
|
|
|
|
|
|
Net income allocated to limited partners |
|
$ |
11,772 |
|
|
$ |
38,915 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Using the method of computing earnings per unit prescribed by EITF 07-4, the net income allocated
to the general partner includes IDRs pertaining to the current reporting period, but paid in the
subsequent period. The net income allocated to the general partners capital account reflects IDRs
paid during the current reporting period. |
Common and subordinated unitholders have always shared equally, on a per-unit basis, in the
net income allocated to limited partners.
We paid or have authorized payment of the following cash distributions during 2008 and 2009
(in thousands, except for per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
Per Unit |
|
|
Common |
|
|
Subordinated |
|
|
|
|
|
|
Distribution |
|
|
Total Cash |
|
Payment Date |
|
Distribution |
|
|
Units |
|
|
Units |
|
|
2% |
|
|
Rights |
|
|
Distribution |
|
2/14/2008 |
|
$ |
0.5750 |
|
|
$ |
26,321 |
|
|
$ |
4,025 |
|
|
$ |
706 |
|
|
$ |
4,231 |
|
|
$ |
35,283 |
|
5/15/2008 |
|
$ |
0.6000 |
|
|
$ |
31,665 |
|
|
|
|
|
|
$ |
758 |
|
|
$ |
5,499 |
|
|
$ |
37,922 |
|
8/14/2008 |
|
$ |
0.6250 |
|
|
$ |
32,984 |
|
|
|
|
|
|
$ |
811 |
|
|
$ |
6,765 |
|
|
$ |
40,560 |
|
11/14/2008 |
|
$ |
0.6350 |
|
|
$ |
33,513 |
|
|
|
|
|
|
$ |
832 |
|
|
$ |
7,272 |
|
|
$ |
41,617 |
|
2/13/2009 |
|
$ |
0.6350 |
|
|
$ |
33,513 |
|
|
|
|
|
|
$ |
832 |
|
|
$ |
7,272 |
|
|
$ |
41,617 |
|
5/15/2009 (a) |
|
$ |
0.6350 |
|
|
$ |
33,513 |
|
|
|
|
|
|
$ |
684 |
|
|
|
|
|
|
$ |
34,197 |
|
|
|
|
(a) |
|
The board of directors of our general partner declared this cash distribution on April 23,
2009 to be paid on May 15, 2009 to unitholders of record at the close of business on May 8,
2009. In April 2009, The Williams Companies, Inc. (Williams) waived the incentive
distribution rights related to 2009 distribution periods. The IDRs paid in February 2009 relate to the
fourth-quarter 2008 distribution to unitholders. |
8
Note 4. Related Party Transactions
In 2009, our omnibus agreement with Williams was amended to increase the aggregate amount of
the credit we can receive related to certain general and administrative expenses for 2009.
Consequently, for 2009, Williams will provide up to an additional $10.0 million credit, in addition
to the $0.8 million annual credit previously provided under the original omnibus agreement, to the extent that
all 2009 non-segment profit general and administrative expenses exceed $36.0 million. We will
record total general and administrative expenses (including those expenses that are subject to the
credit by Williams) as an expense, and we will record any credits as capital contributions from
Williams. Accordingly, our net income will not reflect the benefit of the credit received from
Williams. However, the cost subject to this credit will be allocated entirely to our general
partner. As a result, the net income allocated to limited partners on a per-unit basis will
reflect the benefit of this credit. For the three months ended March 31, 2009, the total general
and administrative credit received from Williams was $0.8 million.
Note 5. Equity Investments
Wamsutter allocates net income (equity earnings) to us based upon the allocation,
distribution, and liquidation provisions of its limited liability company agreement applied as
though liquidation occurs at book value. In general, the agreement allocates income in a manner
that will maintain capital account balances reflective of the amounts each membership interest
would receive if Wamsutter were dissolved and liquidated at carrying value. The income allocation
for the quarterly periods during a year reflects the preferential rights of the Class A member to
any distributions made to the Class C member until the Class A member has received $70.0 million in
distributions for the year. The Class B member receives no income or loss allocation. As the owner
of 100% of the Class A membership interest, we will receive 100% of Wamsutters net income up to
$70.0 million. Income in excess of $70.0 million will be shared between the Class A member and
Class C member, of which we currently own 65%. For annual periods in which Wamsutters net income
exceeds $70.0 million, this will result in a higher allocation of equity earnings to us early in
the year and a lower allocation of equity earnings to us later in the year. Wamsutters net income
allocation does not affect the amount of available cash it distributes for any quarter.
The summarized financial position and results of operations for 100% of Wamsutter are
presented below (in thousands):
Wamsutter
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
|
|
|
Current assets |
|
$ |
16,414 |
|
|
$ |
17,147 |
|
Property, plant and equipment, net |
|
|
331,657 |
|
|
|
318,072 |
|
Non-current assets |
|
|
782 |
|
|
|
468 |
|
Current liabilities |
|
|
(15,424 |
) |
|
|
(16,960 |
) |
Non-current liabilities |
|
|
(4,413 |
) |
|
|
(4,353 |
) |
|
|
|
|
|
|
|
Members capital |
|
$ |
329,016 |
|
|
$ |
314,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
Revenues: |
|
|
|
|
|
|
|
|
Product sales: |
|
|
|
|
|
|
|
|
Affiliate |
|
$ |
18,377 |
|
|
$ |
45,016 |
|
Third-party |
|
|
3,025 |
|
|
|
5,034 |
|
Gathering and processing services |
|
|
19,384 |
|
|
|
15,015 |
|
Other revenues |
|
|
2,445 |
|
|
|
2,560 |
|
Costs and expenses excluding depreciation and accretion: |
|
|
|
|
|
|
|
|
Affiliate |
|
|
12,611 |
|
|
|
33,214 |
|
Third-party |
|
|
9,852 |
|
|
|
7,989 |
|
Depreciation and accretion |
|
|
5,447 |
|
|
|
5,228 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,321 |
|
|
$ |
21,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Williams Partners interest equity earnings |
|
$ |
15,321 |
|
|
$ |
21,194 |
|
|
|
|
|
|
|
|
9
The summarized financial position and results of operations for 100% of Discovery are
presented below (in thousands):
Discovery
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
|
|
|
Current assets |
|
$ |
61,356 |
|
|
$ |
50,978 |
|
Non-current restricted cash and cash equivalents |
|
|
799 |
|
|
|
3,470 |
|
Property, plant and equipment, net |
|
|
370,732 |
|
|
|
370,482 |
|
Current liabilities |
|
|
(54,237 |
) |
|
|
(45,234 |
) |
Non-current liabilities |
|
|
(20,743 |
) |
|
|
(19,771 |
) |
|
|
|
|
|
|
|
Members capital |
|
$ |
357,907 |
|
|
$ |
359,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
Revenues: |
|
|
|
|
|
|
|
|
Affiliate |
|
$ |
12,791 |
|
|
$ |
78,006 |
|
Third-party |
|
|
7,243 |
|
|
|
9,150 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Affiliate |
|
|
7,070 |
|
|
|
38,246 |
|
Third-party |
|
|
18,156 |
|
|
|
26,620 |
|
Interest income |
|
|
(8 |
) |
|
|
(264 |
) |
Foreign exchange (gain) loss |
|
|
168 |
|
|
|
(147 |
) |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,352 |
) |
|
$ |
22,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery investment income: |
|
|
|
|
|
|
|
|
Williams Partners interest equity earnings (losses) |
|
$ |
(3,211 |
) |
|
$ |
13,621 |
|
Business interruption proceeds |
|
|
4,023 |
|
|
|
|
|
|
|
|
|
|
|
|
Discovery investment income |
|
$ |
812 |
|
|
$ |
13,621 |
|
|
|
|
|
|
|
|
In March 2009, we funded a $3.1 million cash call from Discovery for the Tahiti project.
During the second quarter, we will receive a $1.8 million reimbursement of those funds pursuant to
the requirements of our omnibus agreement with Williams. In April 2009, we funded $6.3 million
representing our portion of Discoverys cash call to partners for repair costs in excess of the
deductible, net of any insurance prepayments. Once Discovery receives the remaining insurance
proceeds, we expect it to make special distributions back to its members.
Note 6. Long-Term Debt and Credit Facilities
Long-Term Debt
Long-term debt at March 31, 2009 and December 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
March 31, |
|
|
December 31, |
|
|
|
Rate |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In millions) |
|
Credit agreement term loan, adjustable rate, due 2012 |
|
|
(a |
) |
|
$ |
250 |
|
|
$ |
250 |
|
Senior unsecured notes, fixed rate, due 2017 |
|
|
7.25 |
% |
|
|
600 |
|
|
|
600 |
|
Senior unsecured notes, fixed rate, due 2011 |
|
|
7.50 |
% |
|
|
150 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term debt |
|
|
|
|
|
$ |
1,000 |
|
|
$ |
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
1.27% at March 31, 2009. |
Credit Facilities
We have a $450.0 million senior unsecured credit agreement (Credit Agreement) with Citibank,
N.A., as administrative agent, comprised initially of a $200.0 million revolving credit facility available for borrowings and letters of
credit and a $250.0 million term loan. The parent company and certain affiliates of Lehman
Brothers Commercial Bank, who is committed to fund up to $12.0 million of this credit facility,
filed for
10
bankruptcy in September 2008. We expect that our ability to borrow under this facility is
reduced by this committed amount. The committed amounts of the other participating banks remain in
effect and are not impacted by this reduction. However, debt covenants may restrict the full use
of the credit facility as discussed below. We must repay borrowings under the Credit Agreement by
December 11, 2012. At March 31, 2009, we had a $250.0 million term loan outstanding under the term
loan provisions and no amounts outstanding under the revolving credit facility.
The Credit Agreement contains various covenants that limit, among other things, our, and
certain of our subsidiaries, ability to incur indebtedness, grant certain liens supporting
indebtedness, merge, consolidate, sell all or substantially all of our assets or make distributions
or other payments other than distributions of available cash under certain conditions. Significant
financial covenants under the Credit Agreement include the following:
|
|
|
We are required to maintain a ratio of consolidated indebtedness to consolidated EBITDA
(each as defined in the Credit Agreement) of no greater than 5.00 to 1.00 as of the last day
of any fiscal quarter. This ratio may be increased in the case of an acquisition of $50.0
million or more, in which case the ratio will be 5.50 to 1.00 for the fiscal quarter in
which the acquisition occurs and three fiscal quarter-periods following such acquisition.
At March 31, 2009, our ratio of consolidated indebtedness to consolidated EBITDA, as
calculated under this covenant, of approximately 3.22 is in compliance with this
covenant. |
|
|
|
|
Our ratio of consolidated EBITDA to consolidated interest expense (each as defined in the
Credit Agreement) must be not less than 2.75 to 1.00 as of the last day of any fiscal
quarter, unless we obtain an investment grade rating from Standard and Poors Ratings
Services or Moodys Investors Service and the rating from the other agency is not less than
Ba1 or BB+, as applicable. At March 31, 2009, our ratio of consolidated EBITDA to
consolidated interest expense, as calculated under this covenant, of approximately 4.94 is
in compliance with this covenant. |
Inasmuch as the ratios are calculated on a rolling four-quarter basis, these ratios do not
reflect a full-year impact of the lower earnings we experienced in the fourth quarter of 2008 and
the first quarter of 2009. In the event that, despite our efforts, we breach our financial
covenants causing an event of default, the lenders could, among other things, accelerate the
maturity of any borrowings under the facility (including our $250.0 million term loan) and
terminate their commitments to lend.
We also have a $20.0 million revolving credit facility with Williams as the lender. The
facility is available exclusively to fund working capital requirements. Borrowings under the credit
facility mature on June 20, 2009. We are required to reduce all borrowings under the credit
facility to zero for a period of at least 15 consecutive days once each 12-month period prior to
the maturity date of the credit facility. As of March 31, 2009, we had no outstanding borrowings
under the working capital credit facility.
Note 7. Commitments and Contingencies
Environmental Matters-Four Corners. Current federal regulations require that certain unlined
liquid containment pits located near named rivers and catchment areas be taken out of use, and
current state regulations required all unlined, earthen pits to be either permitted or closed by
December 31, 2005. Operating under a New Mexico Oil Conservation Division-approved work plan, we
have physically closed all of our pits that were slated for closure under those regulations. We are
presently awaiting agency approval of the closures for 40 to 50 of those pits. We are also a
participant in certain hydrocarbon removal and groundwater monitoring activities associated with
certain well sites in New Mexico. Of nine remaining active sites, product removal is ongoing at
four and groundwater monitoring is ongoing at each site. As groundwater concentrations reach and
sustain closure criteria levels and state regulator approval is received, the sites will be
properly abandoned. We expect the remaining sites will be closed within four to seven years.
In April 2007, the New Mexico Environment Departments Air Quality Bureau (NMED) issued a
Notice of Violation (NOV) that alleges various emission and reporting violations in connection with
our Lybrook gas processing plants flare and leak detection and repair program. In December 2007,
the NMED proposed a penalty of approximately $3 million. In July 2008, the NMED issued an NOV that
alleged air emissions permit exceedances for three glycol dehydrators at one of our compressor
facilities and proposed a penalty of approximately $103,000. We are discussing the proposed
penalties with the NMED.
In March 2008, the Environmental Protection Agency (EPA) proposed a penalty of $370,000 for
alleged violations relating to leak detection and repair program delays at our Ignacio gas plant in
Colorado and for alleged permit violations at a compressor station. We met with the EPA and are
exchanging information in order to resolve the issues.
We have accrued liabilities totaling $1.5 million at March 31, 2009 for these environmental
activities. It is reasonably possible that we will incur losses in excess of our accrual for these
matters. However, a reasonable estimate of such amounts cannot be determined
11
at this time because actual costs incurred will depend on the actual number of contaminated
sites identified, the amount and extent of contamination discovered, the final cleanup standards
mandated by governmental authorities, negotiations with the applicable agencies, and other factors.
We are subject to extensive federal, state and local environmental laws and regulations which
affect our operations related to the construction and operation of our facilities. Appropriate
governmental authorities may enforce these laws and regulations with a variety of civil and
criminal enforcement measures, including monetary penalties, assessment and remediation
requirements and injunctions as to future compliance. We have not been notified and are not
currently aware of any material noncompliance under the various applicable environmental laws and
regulations.
Environmental Matters-Conway. We are a participant in certain environmental remediation
activities associated with soil and groundwater contamination at our Conway storage facilities.
These activities relate to four projects that are in various remediation stages including
assessment studies, cleanups and/or remedial operations and monitoring. We continue to coordinate
with the Kansas Department of Health and Environment (KDHE) to develop screening, sampling, cleanup
and monitoring programs. The costs of such activities will depend upon the program scope ultimately
agreed to by the KDHE and are expected to be paid over the next two to six years. At March 31,
2009, we had accrued liabilities totaling $3.2 million for these costs. It is reasonably possible
that we will incur costs in excess of our accrual for these matters. However, a reasonable estimate
of such amounts cannot be determined at this time because actual costs incurred will depend on the
actual number of contaminated sites identified, the amount and extent of contamination discovered,
the final cleanup standards mandated by KDHE and other governmental authorities and other factors.
Under
an omnibus agreement with Williams entered into at the closing of our
initial public offering, Williams
agreed to indemnify us for certain Conway environmental remediation costs. At March 31, 2009,
approximately $7.2 million remains available for future indemnification. Payments received under
this indemnification are accounted for as a capital contribution to us by Williams as the costs are
reimbursed.
Will Price. In 2001, we were named, along with other subsidiaries of Williams, as defendants
in a nationwide class action lawsuit in Kansas state court that had been pending against other
defendants, generally pipeline and gathering companies, since 2000. The plaintiffs alleged that the
defendants have engaged in mismeasurement techniques that distort the heating content of natural
gas, resulting in an alleged underpayment of royalties to the class of producer plaintiffs and
sought an unspecified amount of damages. The defendants have opposed class certification and a
hearing on the plaintiffs second motion to certify the class was held on April 1, 2005. We are
awaiting a decision from the court. The amount of any possible liability cannot be reasonably
estimated at this time.
Grynberg. In 1998, the U.S. Department of Justice (DOJ) informed Williams that Jack Grynberg,
an individual, had filed claims on behalf of himself and the federal government in the United
States District Court for the District of Colorado against Williams,
certain of its subsidiaries (including us) and approximately 300 other energy companies. Grynberg alleged violations of
the False Claims Act in connection with the measurement, royalty valuation and purchase of
hydrocarbons. The claims sought an unspecified amount of royalties allegedly not paid to the
federal government, treble damages, a civil penalty, attorneys fees and costs. In 1999, the DOJ
announced that it would not intervene in any of the Grynberg cases. Also in 1999, the Panel on
Multi-District Litigation transferred all of these cases, including those filed against us, to the
federal court in Wyoming for pre-trial purposes. The District Court dismissed all claims against
Williams and its subsidiaries, including us. On March 17, 2009, the Tenth Circuit Court of Appeals
affirmed the District Courts dismissal. On April 14, 2009, Grynberg filed a petition for
rehearing of the Tenth Circuits judgment.
GEII Litigation. General Electric International, Inc. (GEII) worked on turbines at our
Ignacio, New Mexico plant. We disagree with GEII on the quality of GEIIs work and the appropriate
compensation. GEII asserts that it is entitled to additional extra work charges under the
agreement, which we deny are due. In 2006 we filed suit in federal court in Tulsa, Oklahoma against
GEII, GE Energy Services, Inc., and Qualified Contractors, Inc. We alleged, among other claims,
breach of contract, breach of the duty of good faith and fair dealing, and negligent
misrepresentation and sought unspecified damages. In 2007, the defendants and GEII filed
counterclaims in the amount of $1.9 million against us that alleged breach of contract and breach
of the duty of good faith and fair dealing. Trial has been set for July 2009.
Other. We are not currently a party to any other legal proceedings but are a party to various
administrative and regulatory proceedings that have arisen in the ordinary course of our business.
Summary. Litigation, arbitration, regulatory matters and environmental matters are subject to
inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a
material adverse impact on the results of operations in the period in which
12
the ruling occurs. Management, including internal counsel, currently believes that the
ultimate resolution of the foregoing matters, taken as a whole and after consideration of amounts
accrued, insurance coverage, recovery from customers or other indemnification arrangements, will
not have a material impact upon our future financial position.
13
Note 8. Segment Disclosures
Our reportable segments are strategic business units that offer different products and
services. We manage the segments separately because each segment requires different industry
knowledge, technology and marketing strategies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering & |
|
|
|
|
|
|
|
|
|
Gathering & |
|
|
Processing - |
|
|
NGL |
|
|
|
|
|
|
Processing - West |
|
|
Gulf |
|
|
Services |
|
|
Total |
|
|
|
(In thousands) |
|
Three Months Ended March 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues |
|
$ |
90,778 |
|
|
$ |
486 |
|
|
$ |
14,204 |
|
|
$ |
105,468 |
|
Product cost and shrink replacement |
|
|
18,461 |
|
|
|
|
|
|
|
1,701 |
|
|
|
20,162 |
|
Operating and maintenance expense |
|
|
33,014 |
|
|
|
575 |
|
|
|
6,317 |
|
|
|
39,906 |
|
Depreciation, amortization and accretion |
|
|
10,344 |
|
|
|
32 |
|
|
|
808 |
|
|
|
11,184 |
|
Direct general and administrative expense |
|
|
2,161 |
|
|
|
|
|
|
|
756 |
|
|
|
2,917 |
|
Other, net |
|
|
3,809 |
|
|
|
|
|
|
|
306 |
|
|
|
4,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
|
22,989 |
|
|
|
(121 |
) |
|
|
4,316 |
|
|
|
27,184 |
|
Investment income |
|
|
15,321 |
|
|
|
812 |
|
|
|
|
|
|
|
16,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
38,310 |
|
|
$ |
691 |
|
|
$ |
4,316 |
|
|
$ |
43,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to the Consolidated Statements of Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,184 |
|
General and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated-affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,882 |
) |
Third party-direct |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues |
|
$ |
132,333 |
|
|
$ |
567 |
|
|
$ |
17,462 |
|
|
$ |
150,362 |
|
Product cost and shrink replacement |
|
|
47,446 |
|
|
|
|
|
|
|
4,652 |
|
|
|
52,098 |
|
Operating and maintenance expense |
|
|
40,893 |
|
|
|
524 |
|
|
|
5,667 |
|
|
|
47,084 |
|
Depreciation, amortization and accretion |
|
|
10,299 |
|
|
|
153 |
|
|
|
774 |
|
|
|
11,226 |
|
Direct general and administrative expense |
|
|
1,930 |
|
|
|
|
|
|
|
544 |
|
|
|
2,474 |
|
Other, net |
|
|
2,554 |
|
|
|
|
|
|
|
284 |
|
|
|
2,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
|
29,211 |
|
|
|
(110 |
) |
|
|
5,541 |
|
|
|
34,642 |
|
Equity earnings |
|
|
21,194 |
|
|
|
13,621 |
|
|
|
|
|
|
|
34,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
50,405 |
|
|
$ |
13,511 |
|
|
$ |
5,541 |
|
|
$ |
69,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to the Consolidated Statements of Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
34,642 |
|
General and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated-affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,662 |
) |
Third party-direct |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Please read the following discussion of our financial condition and results of operations in
conjunction with the consolidated financial statements included in Item 1 of Part I of this
quarterly report.
Overview
We are principally engaged in the business of gathering, transporting, processing and treating
natural gas and fractionating and storing natural gas liquids (NGLs). We manage our business and analyze our results of
operations on a segment basis. Our operations are divided into three business segments:
|
|
|
Gathering and Processing West (West). Our West segment includes Four Corners and
ownership interests in Wamsutter, consisting of (i) 100% of the Class A limited liability
company membership interests and (ii) 65% of the Class C limited liability company
membership interests (together, the Wamsutter Ownership Interests). We account for the
Wamsutter Ownership Interests as an equity investment. |
|
|
|
|
Gathering and Processing Gulf (Gulf). Our Gulf segment includes (1) our 60% ownership
interest in Discovery and (2) the Carbonate Trend gathering pipeline off the coast of
Alabama. We account for our ownership interest in Discovery as an equity investment. |
|
|
|
|
NGL Services. Our NGL Services segment includes three integrated NGL storage facilities
and a 50% undivided interest in a fractionator near Conway, Kansas. |
Executive Summary
Our results for the first quarter of 2009 reflect the continuing impact of low NGL commodity
prices. For example, our average NGL margins at Four Corners and Wamsutter for the first quarter
of 2009 have declined approximately 57% from the first quarter of 2008. However, given the current
energy commodity price and NGL margin environment, together with our cash balance, we expect to
maintain our current level of cash distributions throughout 2009. Additionally as discussed
further below, Williams, which owns our general-partner interest, will provide us with significant,
additional support for 2009 which will enable us to maintain a higher level of cash retention and a
stronger overall liquidity position. We maintained our first-quarter unitholder distribution at
$0.635 per unit which equaled our fourth-quarter 2008 distribution and was 6% higher than our
first-quarter 2008 distribution.
Recent Events
In 2009, Williams waived the incentive distribution rights (IDRs) related to 2009 distribution
periods. The IDRs represent approximately $29.0 million, on an annual basis, at the partnerships
current per-unit cash distribution level.
In 2009, our omnibus agreement with Williams was amended to increase the aggregate amount of
the credit we can receive related to certain general and administrative expenses for 2009.
Consequently, for 2009, Williams will provide up to an additional $10.0 million credit, in addition
to the $0.8 million annual credit previously provided under the original omnibus agreement, to the extent that
all 2009 non-segment profit general and administrative expenses exceed $36.0 million. We will
record total general and administrative expenses (including those expenses that are subject to the
credit by Williams) as an expense, and we will record any credits as capital contributions from
Williams. Accordingly, our net income will not reflect the benefit of the credit received from
Williams. However, the costs subject to this credit will be allocated entirely to our general
partner. As a result, the net income allocated to limited partners on a per-unit basis will
reflect the benefit of this credit.
15
Results of Operations
Consolidated Overview
The following table and discussion is a summary of our consolidated results of operations for
the three months ended March 31, 2009, compared to the three months ended March 31, 2008. The
results of operations by segment are discussed in further detail following this consolidated
overview discussion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
March 31, |
|
|
% Change from |
|
|
|
2009 |
|
|
2008 |
|
|
2008(1) |
|
|
|
(Thousands) |
|
|
|
|
|
Revenues |
|
$ |
105,468 |
|
|
$ |
150,362 |
|
|
|
(30 |
)% |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Product cost and shrink replacement |
|
|
20,162 |
|
|
|
52,098 |
|
|
|
+61 |
% |
Operating and maintenance expense |
|
|
39,906 |
|
|
|
47,084 |
|
|
|
+15 |
% |
Depreciation, amortization and accretion |
|
|
11,184 |
|
|
|
11,226 |
|
|
|
|
|
General and administrative expense |
|
|
12,480 |
|
|
|
10,804 |
|
|
|
(16 |
)% |
Taxes other than income |
|
|
2,436 |
|
|
|
2,505 |
|
|
|
+3 |
% |
Other expense net |
|
|
1,679 |
|
|
|
333 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
87,847 |
|
|
|
124,050 |
|
|
|
+29 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
17,621 |
|
|
|
26,312 |
|
|
|
(33 |
)% |
Equity earnings Wamsutter |
|
|
15,321 |
|
|
|
21,194 |
|
|
|
(28 |
)% |
Discovery investment income |
|
|
812 |
|
|
|
13,621 |
|
|
|
(94 |
)% |
Interest expense |
|
|
(15,116 |
) |
|
|
(17,673 |
) |
|
|
+14 |
% |
Interest income |
|
|
34 |
|
|
|
175 |
|
|
|
(81 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,672 |
|
|
$ |
43,629 |
|
|
|
(57 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
+ = Favorable Change; ( ) = Unfavorable Change; NM = A percentage calculation is not
meaningful due to change in signs, a zero-value denominator or a percentage change greater
than 200. |
Three months ended March 31, 2009 vs. three months ended March 31, 2008
Revenues decreased $44.9 million, or 30%, due primarily to lower product sales in our West
segment resulting from significantly lower average NGL sales prices and lower sales of NGLs on
behalf of third-party producers, partially offset by higher fee-based revenues.
Product cost and shrink replacement decreased $31.9 million, or 61%, due primarily to lower
product cost and shrink replacement in our West segment related primarily to decreased purchases of
NGLs from third-party producers who elected to have us sell their NGLs and lower average natural
gas prices.
Operating and maintenance expense decreased $7.2 million, or 15%, due primarily to lower
system and imbalance losses in our West segment.
General and administrative expense increased $1.7 million, or 16%, due primarily to higher
expenses for technical support services and other support services allocated by Williams to us for
administrative support functions.
Other expense net in 2009 reflects a $1.7 million loss recognized on property taken out of
service.
Operating income decreased $8.7 million, or 33%, due primarily to substantially lower average
per-unit NGL sales margins, partially offset by lower operating and maintenance expense and higher
fee-based revenue in our West segment.
Equity earnings from Wamsutter decreased $5.9 million, or 28%, due primarily to lower per-unit
NGL sales margins on lower NGL sales volumes, partially offset by lower operating and maintenance
expense and higher fee-based revenue.
Discovery investment income decreased $12.8 million, or 94%, due primarily to lower equity
earnings resulting from lower NGL sales margins from both lower volumes and lower average per-unit
margins for both keep-whole and percentage-of-liquids processing agreements, partially offset by
$4.0 million hurricane-related receipts under our Discovery-related business interruption policy.
16
Interest expense decreased $2.6 million, or 14%, due primarily to the lower interest rate on
our $250.0 million floating-rate term loan.
Results of operations Gathering and Processing West
The Gathering and Processing West segment includes our Four Corners natural gas gathering,
processing and treating assets and our Wamsutter Ownership Interests.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Thousands) |
|
Revenues |
|
$ |
90,778 |
|
|
$ |
132,333 |
|
Costs and expenses, including interest: |
|
|
|
|
|
|
|
|
Product cost and shrink replacement |
|
|
18,461 |
|
|
|
47,446 |
|
Operating and maintenance expense |
|
|
33,014 |
|
|
|
40,893 |
|
Depreciation, amortization and accretion |
|
|
10,344 |
|
|
|
10,299 |
|
General and administrative expense direct |
|
|
2,161 |
|
|
|
1,930 |
|
Taxes other than income |
|
|
2,129 |
|
|
|
2,221 |
|
Other expense, net |
|
|
1,680 |
|
|
|
333 |
|
|
|
|
|
|
|
|
Total costs and expenses, including interest |
|
|
67,789 |
|
|
|
103,122 |
|
|
|
|
|
|
|
|
Segment operating income |
|
|
22,989 |
|
|
|
29,211 |
|
Equity earnings Wamsutter |
|
|
15,321 |
|
|
|
21,194 |
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
38,310 |
|
|
$ |
50,405 |
|
|
|
|
|
|
|
|
Four Corners
Three months ended March 31, 2009 vs. three months ended March 31, 2008
Revenues decreased $41.6 million, or 31%, due primarily to $46.2 million lower product sales,
slightly offset by $4.7 million higher gathering, processing and other fee revenue.
Product sales revenues decreased due primarily to:
|
|
|
$28.5 million related to a 59% decrease in average NGL sales prices realized on sales of
NGLs which we received under keep-whole and percent-of-liquids processing contracts. This
decrease resulted from general decreases in market prices for these commodities between the
two periods; |
|
|
|
|
$15.8 million lower sales of NGLs on behalf of third-party producers. Under these
arrangements, we purchase the NGLs from the third-party producers and sell them to an
affiliate. This decrease was primarily related to lower market prices and is offset by lower
associated product costs of $15.7 million discussed below; and |
|
|
|
|
$5.5 million lower condensate and liquified natural gas (LNG) sales resulting from decreased average per-unit
condensate prices and lower LNG volumes. |
These product sales decreases were partially offset by $3.6 million higher revenues from an 8%
increase in NGL volumes that Four Corners received under keep-whole and percent-of-liquids
processing contracts. The 2008 first-quarter NGL processing volumes were reduced by prolonged,
severe winter weather during January and February of 2008 and the impact of the fire at the Ignacio
gas processing plant in November 2007. The plant was shut down until January 18, 2008.
Gathering and processing revenues increased $2.9 million, or 5%, due primarily to a 4%
increase in fee-based gathering and processing volumes which resulted primarily from the 2008
weather and fire-related impacts discussed above. Other fee revenues increased $1.7 million due
primarily to higher indemnification revenue received from producers on certain wells.
17
Product cost and shrink replacement decreased $29.0 million, or 61%, due primarily to:
|
|
|
$15.7 million decrease from third-party producers who elected to have us purchase their
NGLs, which was offset by the corresponding decrease in product sales discussed above; |
|
|
|
|
$10.7 million decrease from 58% lower average natural gas prices; and |
|
|
|
|
$2.5 million decrease in condensate and LNG related product cost. |
Operating and maintenance expense decreased $7.9 million, or 19%, due primarily to $8.2
million lower system and imbalance losses resulting from lower volumetric losses and lower gas
prices. While our system losses are generally an unpredictable component of our operating costs,
they can be higher during periods of prolonged, severe winter weather, such as those we experienced
during January and February of 2008. Additionally, operational inefficiencies caused by the fire
at the Ignacio plant impacted our system losses in 2008.
Other expense net in 2009 reflects a $1.7 million loss recognized on property taken out of
service.
Segment operating income decreased $6.2 million, or 21%, due primarily to $14.2 million lower
product sales margins resulting primarily from a 57% decrease in average per-unit NGL margins,
partially offset by $7.9 million lower operating and maintenance expense and $2.9 million higher
fee-based gathering and processing revenue.
Outlook for 2009
|
|
|
NGL and natural gas commodity prices. Because NGL prices, especially ethane, have
declined, we expect significantly lower per-unit NGL margins in 2009 compared to 2008. As
evidenced by recent events, NGL, crude and natural gas prices are highly volatile. Natural
gas prices in the San Juan Basin have been lower than other areas of the country, and we
expect this trend to continue. Because natural gas cost is a component of our NGL margins,
we expect that per-unit NGL margins may be higher in the Four Corners area than some other
areas of the country. Four Corners may experience periods when it is not economical to
recover ethane, which will reduce our margins. We have no hedges in place in 2009 for either
our NGL sales or our natural gas shrink replacement purchases. |
|
|
|
|
Gathering and processing volumes. Despite lower projected well connects in 2009 which
result in lower projected maintenance capital expenditures, we expect average gathering and
processing volumes for 2009 to be only slightly below 2008. Drilling activity by producers
is expected to decline in 2009 due to the current credit crisis and economic downturn,
together with the low commodity price environment. However, when drilling activity
increases, we anticipate that recent capital investments will support producer customers
drilling activity, expansion opportunities and production enhancement activities. |
|
|
|
|
Operating costs. We expect and will pursue reductions in certain costs as demand for
contractors, equipment and supplies decline. |
|
|
|
|
Assets on Jicarilla land. We concluded our negotiations with the Jicarilla Apache Nation
(JAN) during February 2009 with the execution of a 20-year right-of-way agreement. We expect
our total-year 2009 right-of-way expense to be approximately $8.4 million, which is
significantly higher than the total-year 2008 cost of $3.5 million for our special business
licenses with the JAN. |
18
Wamsutter
Wamsutter is accounted for using the equity method of accounting. As such, our interest in
Wamsutters net operating results is reflected as equity earnings in our Consolidated Statements of
Income. The following discussion addresses in greater detail the results of operations for 100% of
Wamsutter. See Note 5, Equity Investments, of our Notes to Consolidated Financial Statements for a
discussion of how Wamsutter allocates its net income between its member owners including us.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Thousands) |
|
Revenues |
|
$ |
43,231 |
|
|
$ |
67,625 |
|
Costs and expenses, including interest: |
|
|
|
|
|
|
|
|
Product cost and shrink replacement |
|
|
12,428 |
|
|
|
26,030 |
|
Operating and maintenance expense |
|
|
5,865 |
|
|
|
11,637 |
|
Depreciation and accretion |
|
|
5,447 |
|
|
|
5,228 |
|
General and administrative expense |
|
|
3,604 |
|
|
|
3,219 |
|
Taxes other than income |
|
|
566 |
|
|
|
484 |
|
Other income, net |
|
|
|
|
|
|
(167 |
) |
|
|
|
|
|
|
|
Total costs and expenses |
|
|
27,910 |
|
|
|
46,431 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,321 |
|
|
$ |
21,194 |
|
|
|
|
|
|
|
|
Williams Partners interest equity earnings per our Consolidated Statements of Income |
|
$ |
15,321 |
|
|
$ |
21,194 |
|
|
|
|
|
|
|
|
Three months ended March 31, 2009 vs. three months ended March 31, 2008
Revenues decreased $24.4 million, or 36%, due primarily to $28.6 million lower product sales,
slightly offset by $4.4 million higher fee-based gathering and processing revenue.
Product sales revenues decreased $28.6 million, or 57%, due primarily to:
|
|
|
$22.2 million related to a 54% decrease in average NGL sales prices realized on sales of
NGLs which Wamsutter received under keep-whole processing contracts. This decrease resulted
from general decreases in market prices for these commodities between the two periods. |
|
|
|
|
$5.7 million related to a 12% decrease in NGL volumes that Wamsutter received under
keep-whole processing contracts. Severe winter weather conditions in 2008 lowered volumes
received under some of Wamsutters larger fee-based processing agreements thus allowing
Wamsutter to process greater volumes under keep-whole processing arrangements. In addition,
lower NGL volumes were produced in the first quarter of 2009 due to operational issues. |
|
|
|
|
$3.1 million related to favorable adjustments to the margin-sharing provisions of one of
Wamsutters significant contracts in the first quarter of 2008. |
These product sales decreases were partially offset by $2.6 million higher sales of NGLs on
behalf of third-party producers. Under these arrangements, Wamsutter purchases NGLs from the
third-party producers and sells them to an affiliate. This decrease is offset by higher associated
product costs of $2.6 million discussed below.
Gathering and processing fee-based revenues increased $4.4 million, or 29%, due primarily to a
24% increase in average volumes. The increase in average volumes was due primarily to production
problems in 2008 caused by severe winter weather conditions and new wells connected in 2009.
Product cost and shrink replacement decreased $13.6 million, or 52%, due primarily to:
|
|
|
$11.6 million decrease from 54% lower average natural gas prices; and |
|
|
|
|
$4.6 million decrease from 18% lower volumetric shrink requirements due to lower volumes
processed under Wamsutters keep-whole processing contracts. |
These decreases were partially offset by $2.6 million higher product cost related to higher
sales of NGLs on behalf of third-party producers who sell their NGLs to Wamsutter under their
contracts as discussed above.
19
Operating and maintenance expense decreased $5.8 million, or 50%, due primarily to $3.5
million lower gathering fuel costs and $1.3 million lower system gains between the two periods.
Gathering fuel costs were higher in 2008 due to weather-related operational problems.
Net income decreased $5.9 million, or 28%, due primarily to $14.8 million lower product sales
margins resulting primarily from sharply decreased per-unit margins on lower NGL sales volumes.
Partially offsetting this increase were $5.8 million lower operating and maintenance expenses and
$4.4 million higher fee-based gathering and processing revenues.
Outlook for 2009
|
|
|
NGL margins. We expect significantly lower cash distributions from Wamsutter in 2009 as
compared to 2008, primarily as a result of lower per-unit NGL margins. As evidenced by
recent events, NGL, crude and natural gas prices are highly volatile. Natural gas prices in
the Rockies basins have been lower than other areas of the country, and we expect this
trend to continue. Because natural gas cost is a component of Wamsutters NGL margins,
Wamsutter expects that per-unit NGL margins may be higher at Wamsutter than some other areas
of the country. However, Wamsutter may still experience periods when it is not economical to
recover ethane which will reduce its margins. |
|
|
|
|
Gathering and processing volumes. We anticipate that our 2009 average gathering volumes
will increase slightly over 2008 levels as a result of our well connect activity, producers
sustained drilling activity, expansion opportunities and production enhancement activities
that should be sufficient to more than offset the historical production decline. Gathering
volumes reached record levels in March 2009. |
|
|
|
|
Third-party processing. In 2008, we executed a new agreement that extended our ability
to send excess unprocessed gas to Colorado Interstates Rawlins natural gas processing plant
through October 2010. This agreement provides Wamsutter with third-party processing of 80
MMcf/d. We expect a full year of natural gas processing in 2009 under this agreement. As a
result, total gas processed will increase, Wamsutter will be able to sell higher volumes of
NGLs, and operating costs will increase approximately $2.0 million. The increased operating
costs will be more than offset by the sale of increased volumes of NGLs. |
|
|
|
|
Operating costs. We expect and will pursue reductions in certain costs as demand for
contractors, equipment and supplies decline. |
Results of Operations Gathering and Processing Gulf
The Gulf segment includes the Carbonate Trend gathering pipeline and our 60% ownership
interest in Discovery.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Thousands) |
|
Segment revenues |
|
$ |
486 |
|
|
$ |
567 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Operating and maintenance expense |
|
|
575 |
|
|
|
524 |
|
Depreciation, amortization and accretion |
|
|
32 |
|
|
|
153 |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
607 |
|
|
|
677 |
|
|
|
|
|
|
|
|
Segment operating loss |
|
|
(121 |
) |
|
|
(110 |
) |
Discovery investment income |
|
|
812 |
|
|
|
13,621 |
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
691 |
|
|
$ |
13,511 |
|
|
|
|
|
|
|
|
Carbonate Trend
Segment operating loss remained essentially unchanged from the first quarter of 2008.
Depreciation, amortization and accretion was substantially lower following the fourth-quarter 2008
impairment of the Carbonate Trend assets.
20
Discovery
Discovery is accounted for using the equity method of accounting. As such, our interest in
Discoverys net operating results is reflected as equity earnings in our Consolidated Statements of
Income. The following discussion addresses in greater detail the results of operations for 100% of
Discovery.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Thousands) |
|
Revenues |
|
$ |
20,034 |
|
|
$ |
87,156 |
|
Costs and expenses, including interest: |
|
|
|
|
|
|
|
|
Product cost and shrink replacement |
|
|
10,231 |
|
|
|
52,240 |
|
Operating and maintenance expense |
|
|
8,471 |
|
|
|
7,008 |
|
Depreciation and accretion |
|
|
3,929 |
|
|
|
6,983 |
|
General and administrative expense |
|
|
1,500 |
|
|
|
1,750 |
|
Interest income |
|
|
(8 |
) |
|
|
(264 |
) |
Other (income) expense, net |
|
|
1,263 |
|
|
|
(3,262 |
) |
|
|
|
|
|
|
|
Total costs and expenses, including interest |
|
|
25,386 |
|
|
|
64,455 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,352 |
) |
|
$ |
22,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Williams Partners interest equity earnings (losses) |
|
$ |
(3,211 |
) |
|
$ |
13,621 |
|
Business interruption proceeds |
|
|
4,023 |
|
|
|
|
|
|
|
|
|
|
|
|
Discovery investment income |
|
$ |
812 |
|
|
$ |
13,621 |
|
|
|
|
|
|
|
|
Three months ended March 31, 2009 vs. three months ended March 31, 2008
Revenues decreased $67.1 million, or 77%, due primarily to $64.3 million lower product sales
and $2.6 million lower fee-based transportation and fractionation revenue. The lower product sales
are due primarily to:
|
|
|
$34.5 million from 67% lower NGL volumes from gas processed under keep-whole and
percent-of-liquids arrangements. NGL volumes recovered declined due primarily to ethane
rejection for two months in the first quarter of 2009 resulting from unfavorable ethane
margins, reduced volumes as a result of 2008 hurricane damages and the absence of volumes
from the Texas Eastern Transmission Company (TETCO) system after our processing arrangement
with them expired in June 2008. |
|
|
|
|
$20.7 million lower sales of NGLs on behalf of third-party producers resulting from both
lower volumes and lower NGL sales prices. The lower volumes are due primarily to the
absence of gas volumes processed from the TETCO system and other third-party
producers. These decreases are offset by lower associated product costs of $20.7 million
discussed below. |
|
|
|
|
$9.2 million from 54% lower average per-unit NGL prices on volumes recovered under
keep-whole and percent-of-liquids arrangements. These price decreases resulted from general
decreases in market prices for these commodities between the two periods. |
Fee-based transportation and fractionation revenues decreased $2.6 million due primarily to
the absence of gas volumes from the TETCO system discussed above and reductions in other gas volumes
impacted by the 2008 hurricanes.
Product cost and shrink replacement decreased $42.0 million, or 80%, due primarily to a $20.7
million decrease in NGL purchases from third-party producers who elected to have us purchase their
NGLs (offset by the corresponding decrease in product sales discussed above) combined with an $11.7
million decrease from 49% lower prices for natural gas purchased for shrink replacement and a $7.8
million decrease from 66% lower volumes of natural gas required for shrink replacement.
Operating and maintenance expense increased $1.5 million, or 21%, due primarily to a 2009
turbine overhaul at the Larose plant.
Depreciation and accretion decreased $3.1 million, or 44%, due primarily to a 2008 change in
the estimated remaining useful lives of the Larose processing plant and the regulated pipeline and
gathering system.
Other (income) expense, net changed unfavorably by $4.5 million due to the absence of a 2008
$3.5 million favorable one-time adjustment for a Federal Energy Regulatory Commission (FERC)
settlement, combined with higher property taxes on the plants following the end of the tax
abatement period.
21
Net income (loss) changed from $22.7 million net income in the first quarter of 2008 to $5.4
million net loss in the first quarter of 2009 due primarily to $23.0 million lower NGL sales
margins resulting from lower volumes and lower average per-unit margins on NGL processing
agreements, $4.5 million unfavorable other (income) expense, net and $2.6 million lower fee-based
revenue. These decreases were slightly offset by $3.1 million lower depreciation and accretion
expense.
Outlook for 2009
|
|
|
Gross processing margins. We expect significantly lower cash distributions from
Discovery in 2009 compared to 2008 primarily as a result of lower per-unit NGL margins. As
evidenced by recent events, NGL, crude and natural gas prices are highly volatile. As NGL
prices, especially ethane, have declined, Discovery is experiencing significantly lower
gross processing margins in 2009 compared to 2008. We anticipate periods when it may not be
economical to recover ethane, which would reduce Discoverys margins. |
|
|
|
|
Plant inlet volumes. Discoverys Larose gas processing plant is currently processing
approximately 520 BBtu/d from all sources and we expect this volume to be similar through
the second quarter due to the current marginal economic processing environment. This
represents a decrease from the 600 BBtu/d being processed prior to Hurricanes Gustav and
Ike in 2008. |
|
|
|
|
Tahiti Production. Discovery expects to begin receiving revenues from its Tahiti
pipeline lateral by mid-2009 based on Chevrons announcement regarding expected timing of
first production. Discoverys lateral line is completed and tied in, has been commissioned
and gas is able to flow through it. Any delays Chevron experiences in bringing their
production online will further impact the initial timing of revenues for Discovery.
Discovery expects approximately 50 BBtu/d to 75 BBtu/d from Tahiti. |
|
|
|
|
Other new supplies. In the second half of 2009, Discovery expects to receive
approximately 50 BBtu/d of new gas production from the Clipper and Daniel Boone prospects.
During the first quarter of 2009, Discovery began receiving new gas production from the
Pegasus and Yosemite prospects and expects total gas volumes to reach 20 BBtu/d. Prior to the 2008 hurricanes, Discovery began receiving gas
from the Valley Forge prospect and expects gas volumes to reach 15 BBtu/d. |
|
|
|
|
Uninsured hurricane cost recovery. Under Discoverys current FERC approved tariff,
Discovery is permitted to recover certain natural disaster related costs, including property
damage insurance deductibles, through a transportation rate surcharge. Discovery recently
received FERC approval to increase its hurricane mitigation relief surcharge effective April
1, 2009 to its maximum allowable rate of $0.05/MMBtu to expedite Discoverys recovery of any
Hurricane Ike-related expenses which should contribute approximately $4.5 million to
Discoverys net income. |
|
|
|
|
Operating costs. Discoverys current property damage insurance policies expire in June
2009. As a result of damage caused by the 2008 hurricanes, Discovery expects insurance for
named wind storms for its offshore assets will be significantly reduced or perhaps be
unavailable at reasonable terms. Additionally, insurance premiums for its onshore assets
could be higher along with higher deductibles and lower coverage limits. |
22
Results of Operations NGL Services
The NGL Services segment includes our three NGL storage facilities near Conway, Kansas and our
undivided 50% interest in the Conway fractionator.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Thousands) |
|
Segment revenues |
|
$ |
14,204 |
|
|
$ |
17,462 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Product cost |
|
|
1,701 |
|
|
|
4,652 |
|
Operating and maintenance expense |
|
|
6,317 |
|
|
|
5,667 |
|
Depreciation and accretion |
|
|
808 |
|
|
|
774 |
|
General and administrative expense direct |
|
|
756 |
|
|
|
544 |
|
Other expense, net |
|
|
306 |
|
|
|
284 |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
9,888 |
|
|
|
11,921 |
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
4,316 |
|
|
$ |
5,541 |
|
|
|
|
|
|
|
|
Three months ended March 31, 2009 vs. three months ended March 31, 2008
Segment revenues decreased $3.3 million, or 19%, due primarily to lower product sales and
fractionation revenues, partially offset by higher storage revenues. The significant components of
the revenue fluctuations are addressed more fully below.
|
|
|
Product sales decreased $3.0 million due to a 54% decrease in average prices per barrel
and lower sales volumes of ethane and normal butane. The decrease in sales prices and
volumes was offset by the related decrease in product cost discussed below. |
|
|
|
|
Fractionation revenues decreased $0.7 million due primarily to a 29% decrease in average
fractionation price per barrel on slightly higher volumes. |
|
|
|
|
Storage revenues increased $1.0 million due primarily to higher overstorage revenue. |
Product cost decreased $3.0 million, or 63%, due to the lower product sales prices and volumes
discussed above.
Segment profit decreased $1.2 million, or 22%, due primarily to unfavorable variances in
fractionation revenues, operating and maintenance expenses and other revenues, partially offset by
higher storage revenues.
Outlook for 2009
|
|
|
We expect 2009 storage revenues will approximate 2008 due to continued strong demand for
propane and natural gasoline storage as well as higher priced specialty storage services. |
|
|
|
|
We continue to perform a large number of storage cavern workovers and wellhead
modifications to comply with Kansas Department of Health and
Environment regulatory requirements. We expect outside service costs
to continue at current levels throughout 2009 to ensure that we meet the regulatory
compliance requirements. |
23
Financial Condition and Liquidity
The global recession and resulting drop in demand and prices for NGLs has significantly
reduced the profitability and cash flows of our gathering and processing businesses, including Four
Corners, Wamsutter and Discovery. We expect lower NGL margins during 2009 than 2008, and there may
be periods when it is not economical to recover ethane which will further reduce our margins. As a
result, we expect cash flow from operations, including cash distributions from Wamsutter and
Discovery, to be significantly lower in 2009 than 2008. Additionally, instability in financial
markets has created global concerns about the liquidity of financial institutions and is having
overarching impacts on the economy as a whole. However, we have no debt maturities until 2011, and
as of March 31, 2009, we have approximately $77.3 million of cash and cash equivalents and $208.0
million of available capacity under our credit facilities. The availability of the capacity under
the credit facilities may be restricted under certain circumstances as discussed below under
Credit Facilities. We believe we have the financial resources and liquidity necessary to meet
requirements for working capital, capital and investment expenditures, debt service and quarterly
cash distributions.
We anticipate our sources of liquidity for the remainder of 2009 will include:
|
|
|
Cash and cash equivalents on hand; |
|
|
|
|
Cash generated from operations, including cash distributions from Wamsutter and
Discovery; |
|
|
|
|
Capital contributions from Williams pursuant to the omnibus agreement; and |
|
|
|
|
Use of credit facilities, as needed and available. |
|
|
We anticipate our more significant uses of cash for the remainder of 2009 to be: |
|
|
|
|
Maintenance and expansion capital expenditures for our Four Corners and Conway assets; |
|
|
|
|
Contributions we must make to Wamsutter LLC to fund certain of its expansion capital
expenditures as defined by the Wamsutter LLC agreement; |
|
|
|
|
Cash calls from Discovery for hurricane damage repairs, which generally should be
reimbursed by insurance; |
|
|
|
|
Interest on our long-term debt; and |
|
|
|
|
Quarterly distributions to our unitholders and/or general partner. Our general partner
has waived its IDRs with respect to 2009 distribution
periods which will reduce our 2009 use of cash. |
Additionally, we plan to continue pursuing select value-adding growth opportunities in a
prudent manner.
Available Liquidity at March 31, 2009 (in millions):
|
|
|
|
|
Cash and cash equivalents |
|
$ |
77.3 |
|
Available capacity under our $450 million five-year senior unsecured credit facility(1) |
|
|
188.0 |
|
Available capacity under our $20 million revolving credit facility with Williams as lender |
|
|
20.0 |
|
|
|
|
|
Total |
|
$ |
285.3 |
|
|
|
|
|
|
|
|
(1) |
|
The original amount has been reduced by $12.0 million due to the
bankruptcy of the parent company and certain affiliates of Lehman. See Note 6, Long-Term Debt and
Credit Facilities, of our Notes to Consolidated Financial Statements.
The committed amounts of other participating banks remain in effect
and are not impacted by this reduction. Additionally, availability of
our capacity under this credit facility in future periods could be
constrained by compliance with required covenants. |
These liquidity sources and cash requirements are discussed in greater detail below.
24
Wamsutter Distributions
Wamsutter expects to make quarterly distributions of available cash to its members pursuant to
the terms of its limited liability company agreement. Available cash is defined as cash generated
from Wamsutters business less reserves that are necessary or appropriate to provide for the
conduct of its business and to comply with applicable law and/or debt instruments or other
agreements to which it is a party. Wamsutter made the following 2009 distributions to its members
(all amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Share |
|
|
|
|
Date of Distribution |
|
Total Distribution to Members |
|
|
Class A |
|
|
Class C |
|
|
Other Class C |
|
|
3/30/09 |
|
$ |
13,500 |
|
|
$ |
13,500 |
|
|
$ |
|
|
|
$ |
|
|
The Wamsutter LLC agreement provides that to the extent at the end of the fourth quarter of a
distribution year, the Class A member has received less than $70.0 million, the Class C members
will be required to repay any distributions received in that distribution year such that the Class
A member receives $70.0 million for that distribution year. Thus, our Class A membership interest
will ultimately receive the first $70.0 million of cash for any distribution year. Additionally,
during the first quarter of 2009 Williams paid Wamsutter and Wamsutter paid us $2.1 million in
transition support payments related to the amount by which Wamsutters general and administrative
expenses exceeded a certain cap.
Discovery Distributions
Discovery expects to make quarterly distributions of available cash to its members pursuant to
the terms of its limited liability company agreement. As a result of disruptions and damage from
Hurricanes Gustav and Ike, Discovery did not make a distribution for the fourth quarter of 2008 in
January 2009. Discovery also did not make a distribution for the first quarter of 2009 in April
2009 as a result of sharply lower NGL margins combined with the reduced volumes resulting from the
2008 hurricane damage to the gathering system.
Insurance Recoveries
On September 13, 2008, Hurricane Ike hit the Gulf Coast area, and Discoverys offshore
gathering system sustained damage. Inspections revealed that an 18-inch lateral was severed from
its connection to the 30-inch mainline in 250 feet of water. The repair of the gathering system has
been completed and the total repair cost incurred through March 31, 2009, was approximately $56.6
million, including $47.8 million in potentially reimbursable expenditures in excess of the
insurance deductible and $2.4 million in unreimbursable expenditures. Discovery funded the $6.4
million deductible amount with cash on hand and filed for and received a prepayment of $38.7
million from the insurance provider. In April 2009, we funded $6.3 million representing our portion
of Discoverys cash call to partners for repair costs in excess of the deductible, net of any
insurance prepayments. Once Discovery receives the remaining insurance proceeds, we expect it to
make special distributions back to its members. Discovery does not anticipate any further need for
cash calls to fund hurricane repair costs. We have also filed for reimbursement from our insurance
carrier for lost profits under our Discovery-related business interruption policy, which has a
60-day deductible period, and have received $5.9 million to date.
On November 28, 2007, the Ignacio gas processing plant sustained significant damages from a
fire. The estimated total cost for fire-related repairs is approximately $38.2 million, including
$37.2 million in potentially reimbursable expenditures in excess of the insurance deductible. Of
this amount, $25.4 million has been incurred through March 31, 2009. We are funding these repairs
with cash flows from operations, are seeking reimbursement from our insurance carrier and have
received $22.8 million of insurance proceeds to date. Future property damage insurance proceeds
will relate to the replacement of capital assets destroyed by the fire. Since the destroyed assets
have been fully written off, these proceeds will result in additional involuntary conversion gains.
We have also filed for reimbursement from our insurance carrier for lost profits under our business
interruption policy and have received $4.4 million to date.
25
Modification of Omnibus Agreement with Williams
In 2009, our omnibus agreement with Williams was amended to increase the aggregate amount of
the credit we can receive related to certain general and administrative expenses for 2009.
Consequently, for 2009, Williams will provide up to an additional $10.0 million credit, in addition
to the $0.8 million annual credit previously provided under the original omnibus agreement, to the extent that
all 2009 non-segment profit general and administrative expenses exceed $36.0 million. We will
record total general and administrative expenses (including those expenses that are subject to the
credit by Williams) as an expense, and we will record any credits as capital contributions from
Williams. Accordingly, our net income will not reflect the benefit of the credit received from
Williams. However, the costs subject to this credit will be allocated entirely to our general
partner. As a result, the net income allocated to limited partners on a per-unit basis will
reflect the benefit of this credit.
Credit Facilities
Under our $450.0 million senior unsecured credit agreement (Credit Agreement) with Citibank,
N.A., we have a $200.0 million revolving credit facility available for borrowings and letters of
credit and a $250.0 million term loan. The parent company and certain affiliates of Lehman, who is
committed to fund up to $12.0 million of this credit facility, filed for bankruptcy in September 2008. We expect that our ability to borrow under this facility is reduced by this committed
amount. The committed amounts of the other participating banks remain in effect and are not
impacted by this reduction. However, debt covenants may restrict the full use of the credit
facility as discussed below. We must repay borrowings under the Credit Agreement by December 11,
2012. At March 31, 2009, we had a $250.0 million term loan outstanding under the term loan
provisions and no amounts outstanding under the revolving credit facility.
The Credit Agreement contains various covenants that limit, among other things, our, and
certain of our subsidiaries, ability to incur indebtedness, grant certain liens supporting
indebtedness, merge, consolidate, sell all or substantially all of our assets or make distributions
or other payments other than distributions of available cash under certain conditions. Significant
financial covenants under the Credit Agreement include the following:
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|
|
We are required to maintain a ratio of consolidated indebtedness to consolidated EBITDA
(each as defined in the Credit Agreement) of no greater than 5.00 to 1.00 as of the last day
of any fiscal quarter. This ratio may be increased in the case of an acquisition of $50.0
million or more, in which case the ratio will be 5.50 to 1.00 for the fiscal quarter in
which the acquisition occurs and three fiscal quarter-periods following such acquisition. At
March 31, 2009, our ratio of consolidated indebtedness to consolidated EBITDA, as calculated
under this covenant, of approximately 3.22 is in compliance with this covenant. |
|
|
|
|
Our ratio of consolidated EBITDA to consolidated interest expense (each as defined in the
Credit Agreement) must be not less than 2.75 to 1.00 as of the last day of any fiscal
quarter, unless we obtain an investment grade rating from Standard and Poors Ratings
Services or Moodys Investors Service and the rating from the other agency is not less than
Ba1 or BB+, as applicable. At March 31, 2009, our ratio of consolidated EBITDA to
consolidated interest expense, as calculated under this covenant, of approximately 4.94 is
in compliance with this covenant. |
Although it is difficult to predict future commodity pricing, we expect to remain in
compliance with the Credit Agreement ratios described above throughout 2009 given the current
energy commodity price and NGL margin environment. Inasmuch as the ratios are calculated on a
rolling four-quarter basis, the ratios at March 31, 2009, do not reflect a full-year impact of the
lower earnings we experienced in late 2008 and the first quarter of 2009. If unexpected events
happen or economic conditions or energy commodity prices and NGL margins decline further for a
prolonged period of time, our financial covenant ratios may fall below required levels. If such a
situation appeared likely, we would take actions necessary to avoid a breach of our covenants,
including seeking covenant relief through waivers or the restructuring or replacement of our
facility, reducing our indebtedness or seeking assistance from our general partner. Market
conditions could make these alternatives challenging, and no assurances can be given that we would
be successful in our efforts. Even if successful, we could experience increased borrowing costs and
reduced liquidity which could limit our ability to fund capital expenditures and make cash
distributions to unitholders. In the event that despite our efforts we breach our financial
covenants causing an event of default, the lenders could, among other things, accelerate the
maturity of any borrowings under the facility (including our $250.0 million term loan) and
terminate their commitments to lend.
In addition, our ability to borrow the remaining $188.0 million currently available under the
Credit Agreement could be restricted by the impact of weaker energy commodity prices or future
borrowings. Either could limit our ability to borrow the full amount under the Credit Agreement to
the extent such new borrowing would cause us to be out of compliance at the end of the fiscal
quarter with either of the financial ratios discussed above.
26
We also have a $20.0 million revolving credit facility with Williams as the lender. The
facility is available exclusively to fund working capital requirements. We are required to and have
reduced all borrowings under this facility to zero for a period of at least 15 consecutive days
once each 12-month period prior to the maturity date of the facility. Borrowings under the credit
facility mature on June 20, 2009. We expect that Williams will renew this revolving credit
facility upon maturity. As of March 31, 2009, we had no outstanding borrowings under the working
capital credit facility.
Wamsutter has a $20.0 million revolving credit facility with Williams as the lender. The
credit facility is available exclusively to fund Wamsutters working capital requirements.
Borrowings under the credit facility mature on December 12, 2009 with four, one-year automatic
extensions unless terminated by either party. As of March 31, 2009, Wamsutter had no outstanding
borrowings under the credit facility.
Credit Ratings
The table below presents our current credit ratings on our senior unsecured long-term debt.
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|
|
Senior Unsecured |
Rating Agency |
|
Date of Last Change |
|
Outlook |
|
Debt Rating |
Standard & Poors.
|
|
November 9, 2007
|
|
Stable
|
|
BBB- |
Moodys Investor Service
|
|
November 6, 2008
|
|
Negative
|
|
Ba2 |
Fitch Ratings
|
|
May 8, 2008
|
|
Stable
|
|
BB+ |
At March 31, 2009, the evaluation of our credit rating is stable outlook from Standard and
Poors and Fitch Ratings agencies. On November 6, 2008, Moodys Investors Service (Moodys) changed
the ratings outlook for Williams and each of Williams rated subsidiaries, including WPZ, from
stable to negative following the announcement that Williams management and board of directors
were evaluating a variety of structural changes to Williams. On February 26, 2009, Moodys revised
Williams, and certain Williams rated subsidiaries, excluding us, to stable from negative.
With respect to Moodys, a rating of Baa or above indicates an investment grade rating. A
rating below Baa is considered to have speculative elements. A Ba rating indicates an
obligation that is judged to have speculative elements and is subject to substantial credit risk.
The 1, 2 and 3 modifiers show the relative standing within a major category. A 1 indicates
that an obligation ranks in the higher end of the broad rating category, 2 indicates a mid-range
ranking, and 3 indicates a ranking at the lower end of the category.
With respect to Standard and Poors, a rating of BBB or above indicates an investment grade
rating. A rating below BBB indicates that the security has significant speculative
characteristics. A BB rating indicates that Standard and Poors believes the issuer has the
capacity to meet its financial commitment on the obligation, but adverse business conditions could
lead to insufficient ability to meet financial commitments. Standard and Poors may modify its
ratings with a + or a - sign to show the obligors relative standing within a major rating
category.
With respect to Fitch, a rating of BBB or above indicates an investment grade rating. A
rating below BBB is considered speculative grade. A BB rating from Fitch indicates that there
is a possibility of credit risk developing, particularly as the result of adverse economic change
over time; however, business or financial alternatives may be available to allow financial
commitments to be met. Fitch may add a + or a - sign to show the obligors relative standing
within a major rating category.
Credit rating agencies perform independent analyses when assigning credit ratings. No
assurance can be given that the credit rating agencies will assign us investment grade ratings even
if we meet or exceed their current criteria for investment grade ratios. A downgrade of our credit
rating might increase our future cost of borrowing.
27
Capital Expenditures
The natural gas gathering, treating, processing and transportation, and NGL fractionation and
storage businesses are capital-intensive, requiring investment to upgrade or enhance existing
operations and comply with safety and environmental regulations. The capital requirements of these
businesses consist primarily of:
|
|
|
Maintenance capital expenditures, which are capital expenditures made to replace
partially or fully depreciated assets in order to maintain the existing operating capacity
of our assets, including certain well connection expenditures, and to extend their useful
lives including expenditures which are mandatory and/or essential for maintaining the
reliability of our operations; and |
|
|
|
|
Expansion capital expenditures, which tend to be more discretionary than maintenance
capital expenditures, include expenditures to acquire additional assets to grow our
business, to expand and upgrade plant or pipeline capacity and to construct new plants,
pipelines and storage facilities. |
The following table provides summary information related to our, Wamsutters and Discoverys
expected capital expenditures for 2009 and actual spending through March 31, 2009 (in millions):
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance |
|
|
Expansion |
|
|
Total |
|
|
|
|
|
|
|
Through |
|
|
|
|
|
|
Through |
|
|
|
|
|
|
Through |
|
Company |
|
Total Year Estimate |
|
|
Mar. 31, 2009 |
|
|
Total Year Estimate |
|
|
Mar. 31, 2009 |
|
|
Total Year Estimate |
|
|
Mar. 31, 2009 |
|
Four Corners |
|
$ |
15 - 20 |
|
|
$ |
5.0 |
|
|
$ |
5 - 10 |
|
|
$ |
.2 |
|
|
$ |
20 - 30 |
|
|
$ |
5.2 |
|
Conway |
|
|
3 - 6 |
|
|
|
.2 |
|
|
|
8 - 12 |
|
|
|
1.6 |
|
|
|
11 - 18 |
|
|
|
1.8 |
|
Wamsutter (our share) |
|
|
20 - 25 |
|
|
|
5.4 |
|
|
|
1 - 2 |
|
|
|
.5 |
|
|
|
21 - 27 |
|
|
|
5.9 |
|
Discovery (our share) |
|
|
1 - 3 |
|
|
|
|
|
|
|
4 - 7 |
|
|
|
1.9 |
|
|
|
5 - 10 |
|
|
|
1.9 |
|
We expect to fund Four Corners and Conways maintenance and expansion capital expenditures
with cash flows from operations. Four Corners estimated maintenance capital expenditures for 2009
include a range of $12.0 million to $14.0 million related to well connections necessary to connect
new sources of throughput for the Four Corners system which will serve to partially offset the
historical decline in throughput volumes. Four Corners 2009 expansion capital expenditures relate
primarily to gathering system expansion projects. Conways expansion capital expenditures relate to
two projects: first, the drilling of two new ethane/propane mix caverns and conversion of certain
ethane/propane caverns for use as propane storage caverns and second, the completion of a project
to improve our flexibility and storage capabilities with respect to refinery grade butane.
Wamsutters estimated maintenance capital expenditures for 2009 include a range of $20.0
million to $22.0 million related to well connections necessary to connect new sources of throughput
for the Wamsutter system which will serve to offset the historical decline in throughput volumes.
We expect Wamsutter will fund its maintenance capital expenditures through its cash flows from
operations.
Wamsutter funds its expansion capital expenditures through capital contributions from its
members as specified in its limited liability company agreement. This agreement specifies that
expansion capital projects with expected total expenditures in excess of $2.5 million at the time
of approval and well connections that increase gathered volumes beyond current levels be funded by
contributions from its Class B membership, which we do not own. However, our ownership of the Class
A membership interest requires us to provide capital contributions related to expansion projects
with expected total expenditures less than $2.5 million at the time of approval. Wamsutter will
issue Class C units to us for the expansion capital projects we fund.
Discovery will fund its 2009 maintenance and expansion capital expenditures either by cash
calls to its members or from its cash flows from operations. We funded a cash call from Discovery
for $3.1 million in March 2009 for the Tahiti project and in second-quarter 2009, we will receive a
$1.8 million reimbursement of those costs pursuant to the requirements of our omnibus agreement
with Williams.
Cash Distributions to Unitholders
We paid quarterly distributions to common and subordinated unitholders and our general partner
interest after every quarter since our initial public offering on August 23, 2005. Our next quarterly distribution of
$34.2 million will be paid on May 15, 2009 to the general partner interest and common unitholders
of record at the close of business on May 8, 2009.
28
Results of Operations Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
Williams Partners L.P. |
|
2009 |
|
|
2008 |
|
|
|
(Thousands) |
|
Net cash provided by operating activities |
|
$ |
12,532 |
|
|
$ |
48,204 |
|
Net cash used by investing activities |
|
|
(10,120 |
) |
|
|
(15,410 |
) |
Net cash used by financing activities |
|
|
(41,290 |
) |
|
|
(34,436 |
) |
Net cash provided by operating activities decreased $35.7 million for first-quarter 2009 as
compared to first-quarter 2008 due primarily to $21.0 million lower distributions related to equity
earnings in Discovery and Wamsutter, $11.8 million decrease from changes in working capital
excluding accrued interest and $8.2 million lower operating income excluding non-cash items. These
decreases in net cash provided by operating activities were partially offset by $4.0 million of
2009 hurricane-related income under our Discovery-related business interruption policy.
Net cash used by investing activities decreased $5.3 million for first-quarter 2009 as
compared to first-quarter 2008 due primarily to $11.1 million lower capital expenditures, partially
offset by $3.2 million lower distributions in excess of equity earnings from Discovery and $2.6
million higher contributions to Discovery for cash calls related to the hurricane damage repair and
expansion project funding.
Net cash used by financing activities increased $6.9 million for first-quarter 2009 as
compared to first-quarter 2008 due primarily to an increase in quarterly distributions to
unitholders and our general partner.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
Wamsutter 100 percent |
|
2009 |
|
|
2008 |
|
|
|
(Thousands) |
|
Net cash provided by operating activities |
|
$ |
19,166 |
|
|
$ |
28,625 |
|
Net cash used by investing activities |
|
|
(18,487 |
) |
|
|
(4,089 |
) |
Net cash used by financing activities |
|
|
(679 |
) |
|
|
(24,536 |
) |
Net cash provided by operating activities decreased $9.5 million in the first quarter of 2009
as compared to the first quarter of 2008 due primarily to a $5.5 million decrease in operating
income, as adjusted for non-cash expenses, and a $3.9 million decrease related to changes in
working capital.
Net cash used by investing activities in the first quarter of 2009 is primarily comprised of
capital expenditures related to plant expansion projects and connection of new wells. The plant
expansion projects include $10.1 million which was funded by Williams in accordance with
Wamsutters limited liability company (LLC) agreement. Net cash used by investing activities in the
first quarter of 2008 is primarily comprised of capital expenditures related to the connection of
new wells.
Net cash used by financing activities in the first quarter of 2009 is related to cash
distributions to Wamsutters members pursuant to the distribution provisions of Wamsutters LLC
agreement substantially offset by capital contributions received from Wamsutters members for
certain capital projects. Net cash used by financing activities in the first quarter of 2008 is
primarily related to cash distributions to Wamsutters members pursuant to the distribution
provisions of Wamsutters LLC agreement.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
Discovery 100 percent |
|
2009 |
|
|
2008 |
|
|
|
(Thousands) |
|
Net cash provided (used) by operating activities |
|
$ |
(928 |
) |
|
$ |
32,043 |
|
Net cash used by investing activities |
|
|
(7,551 |
) |
|
|
(3,882 |
) |
Net cash provided (used) by financing activities |
|
|
3,332 |
|
|
|
(25,672 |
) |
Net cash provided (used) by operating activities changed unfavorably from $32.0 million net
cash provided in the first quarter of 2008 to $0.9 million net cash used in the first quarter of
2009 due primarily to $31.1 million lower net income as adjusted for non-cash items.
Net cash used by investing activities includes $10.2 million and $6.5 million of capital
spending in the first quarters of 2009 and 2008, respectively, for the Tahiti lateral and other
smaller projects. These expenditures were partially offset by changes in Tahiti-related restricted
cash in both quarters.
29
Net cash provided (used) by financing activities changed from $25.7 million net cash used in
the first quarter of 2008 to $3.3 million net cash provided in the first quarter of 2009 due
primarily to the lack of $28.0 million cash distributions to the partners in 2009.
Contractual Obligations
Our contractual obligations changed from our 2008 Form 10-K as a result of our February 2009 execution of a 20-year
right-of-way agreement with the JAN by the following amounts:
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|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010-2011 |
|
|
2012-2013 |
|
|
2014+ |
|
|
Total |
|
|
|
(in thousands) |
|
Operating leases(a) |
|
$ |
7,340 |
|
|
$ |
15,056 |
|
|
$ |
15,056 |
|
|
$ |
112,920 |
|
|
$ |
150,372 |
|
|
|
|
(a) |
|
Each year from 2010 through 2029 will also include an additional annual payment, which
varies depending on the prior years per-unit NGL margins and the volume of gas gathered by Four
Corners gathering facilities subject to the agreement. The table above does not include any such variable amounts related to this agreement. |
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Market risk is the risk of loss arising from adverse changes in market rates and prices. The
principal market risks to which we are exposed are commodity price risk and interest rate risk.
Commodity Price Risk
We are exposed to the impact of fluctuations in the market price of NGLs and natural gas, as
well as other market factors, such as market volatility and commodity price correlations. We are
exposed to these risks in connection with our owned energy-related assets and our long-term
energy-related contracts. During 2009, we are not party to any derivative contracts to manage a
portion of the risks associated with these market fluctuations.
Interest Rate Risk
Our interest rate risk exposure is related primarily to our debt portfolio and has not
materially changed during the first three months of 2009. See Note 6, Long-Term Debt and Credit
Facilities, of Notes to Consolidated Financial Statements.
|
|
|
Item 4. |
|
Controls and Procedures |
Our management, including our general partners Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act) (Disclosure Controls) or our internal controls over
financial reporting (Internal Controls) will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within Williams Partners L.P. have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the control. The design
of any system of controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.
We monitor our Disclosure Controls and Internal Controls and make modifications as necessary; our
intent in this regard is that the Disclosure Controls and the Internal Controls will be modified as
systems change and conditions warrant.
Evaluation
of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our Disclosure Controls was
performed as of the end of the period covered by this report. This evaluation was performed under
the supervision and with the participation of our management,
30
including our general partners Chief Executive Officer and Chief Financial Officer. Based
upon that evaluation, our general partners Chief Executive Officer and Chief Financial Officer
concluded that these Disclosure Controls are effective at a reasonable assurance level.
First-Quarter 2009 Changes in Internal Controls Over Financial Reporting
There have been no changes during the first quarter of 2009 that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial reporting.
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
The information required for this item is provided in Note 7, Commitments and Contingencies,
included in the Notes to Consolidated Financial Statements included under Part I, Item 1, which
information is incorporated by reference into this item.
Part I., Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December
31, 2008, includes certain risk factors that could materially affect our business, financial
condition or future results. Those risk factors have not materially changed except as set forth
below:
We are subject to risks associated with climate change.
There is a growing belief that emissions of greenhouse gases may be linked to climate change.
Climate change and the costs that may be associated with its impacts and the regulation of
greenhouse gases have the potential to affect our business in many ways, including negatively
impacting the costs we incur in providing our products and services, the demand for and consumption
of our products and services (due to change in both costs and weather patterns), and the economic
health of the regions in which we operate, and all of which can create financial risks.
Our operations are subject to governmental laws and regulations relating to the protection of the
environment, which may expose us to significant costs and liabilities and could exceed current
expectations.
The risk of substantial environmental costs and liabilities is inherent in natural gas
gathering, transportation, processing and treating, and in the fractionation and storage of NGLs,
and we may incur substantial environmental costs and liabilities in the performance of these types
of operations. Our operations are subject to extensive federal, state and local environmental laws
and regulations governing environmental protection, the discharge of materials into the environment
and the security of chemical and industrial facilities. For a description of these laws and
regulations, please read Business and Properties Environmental Regulation in our Annual Report
on Form 10-K for the year ended December 31, 2008.
Various governmental authorities, including the U.S. Environmental Protection Agency and
analogous state agencies and the United States Department of Homeland Security, have the power to
enforce compliance with these laws and regulations and the permits issued under them, oftentimes
requiring difficult and costly actions. Failure to comply with these laws, regulations, and permits
may result in the assessment of administrative, civil, and criminal penalties, the imposition of
remedial obligations, and the issuance of injunctions limiting or preventing some or all of our
operations.
31
There is inherent risk of the incurrence of environmental costs and liabilities in our
business, some of which may be material, due to our handling of the products we gather, transport,
process, fractionate and store, air emissions related to our operations, historical industry
operations, waste disposal practices, and the prior use of flow meters containing mercury. Joint
and several, strict liability may be incurred without regard to fault under certain environmental
laws and regulations, including the Federal Comprehensive Environmental Response, Compensation, and
Liability Act, the Federal Resource Conservation and Recovery Act, and analogous state laws, for
the remediation of contaminated areas and in connection with spills or releases of natural gas and
wastes on, under, or from our properties and facilities. Private parties, including the owners of
properties through which our pipeline and gathering systems pass, may have the right to pursue
legal actions to enforce compliance as well as to seek damages for non-compliance with
environmental laws and regulations or for personal injury or property damage arising from our
operations. Some sites we operate are located near current or former third-party hydrocarbon
storage and processing operations, and there is a risk that contamination has migrated from those
sites to ours. In addition, increasingly strict laws, regulations and enforcement policies could
materially increase our compliance costs and the cost of any remediation that may become necessary.
Our insurance may not cover all environmental risks and costs or may not provide sufficient
coverage if an environmental claim is made against us. Our business may be adversely affected by
increased costs due to stricter pollution control requirements or liabilities resulting from
non-compliance with required operating or other regulatory permits.
We make assumptions and develop expectations about possible expenditures related to
environmental conditions based on current laws and regulations and current interpretations of those
laws and regulations. If the interpretation of laws or regulations, or the laws and regulations
themselves, change, our assumptions may change. In addition, new environmental laws and regulations
might adversely affect our products and activities, including processing, fractionation, storage
and transportation, as well as waste management and air emissions. For instance, federal and state
agencies could impose additional safety requirements, any of which could affect our profitability.
In addition, recent scientific studies have suggested that emissions of certain gases, commonly
referred to as greenhouse gases, may be contributing to warming of the earths atmosphere, and
various governmental bodies have considered legislative and regulatory responses in this area.
Legislative and regulatory responses related to greenhouse gases and climate change create the
potential for financial risk. The United States Congress and certain states have for some time
been considering various forms of legislation related to greenhouse gas emissions. There have also
been international efforts seeking legally binding reductions in emissions of greenhouse gases.
In addition, increased public awareness and concern may result in more state, regional and/or
federal requirements to reduce or mitigate the emission of greenhouse gases.
Several bills have been introduced in the United States Congress that would compel carbon
dioxide emission reductions. Previously considered proposals have included, among other things,
limitations on the amount of greenhouse gases that can be emitted (so-called caps), together with
systems of emissions allowances. These actions could result in increased costs to (i) operate and
maintain our facilities, (ii) install new emission controls on our facilities, and (iii) administer
and manage any greenhouse gas emissions program. Numerous states have also announced or adopted
programs to stabilize and reduce greenhouse gases, and similar federal legislation has been
introduced in both houses of the Congress. If we are unable to recover or pass through all costs
related to complying with climate change regulatory requirements imposed on us, it could have a
material adverse effect on our results of operations and our ability to make distributions to
unitholders. To the extent financial markets view climate change and emissions of greenhouse gases
as a financial risk, this could negatively impact our cost of and access to capital.
Our assets and operations can be affected by weather and other natural phenomena.
Our assets and operations can be adversely affected by hurricanes, floods, earthquakes,
tornadoes and other natural phenomena and weather conditions, including extreme temperatures,
making it more difficult for us to realize the historic rates of return associated with these
assets and operations. Insurance may be inadequate, and in some instances, we may be unable to
obtain insurance on commercially reasonable terms, if at all. A significant disruption in
operations or a significant liability for which we were not fully insured could have a material
adverse effect on our business, results of operations and financial condition and our ability to
make distributions to unitholders.
Our customers energy needs vary with weather conditions. To the extent weather conditions are
affected by climate change or demand is impacted by regulations associated with climate change,
customers energy use could increase or decrease depending on the duration and magnitude of the
changes, leading either to increased investment or decreased revenues.
32
The following documents are included as exhibits to this report:
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
*Exhibit 3.1
|
|
Certificate of Limited Partnership of Williams Partners L.P. (attached as Exhibit
3.1 to Williams Partners L.P.s registration statement on Form S-1 (File No.
333-124517) filed with the SEC on May 2, 2005). |
|
|
|
*Exhibit 3.2
|
|
Certificate of Formation of Williams Partners GP LLC (attached as Exhibit 3.3 to
Williams Partners L.P.s registration statement on Form S-1 (File No. 333-124517)
filed with the SEC on May 2, 2005). |
|
|
|
+Exhibit 3.3
|
|
Amended and Restated Agreement of Limited Partnership of Williams Partners L.P.
(including form of common unit certificate), as amended by Amendments Nos. 1, 2,
3, 4 and 5. |
|
|
|
*Exhibit 3.4
|
|
Amended and Restated Limited Liability Company Agreement of Williams Partners GP
LLC (attached as Exhibit 3.2 to Williams Partners L.P.s current report on Form
8-K (File No. 001-32599) filed with the SEC on August 26, 2005). |
|
|
|
*#Exhibit 10.1
|
|
Director Compensation Policy dated November 29, 2005, as revised January 26, 2009
(attached as Exhibit 10.8 to Williams Partners L.P.s annual report on Form 10-K
(File No. 001-32599) filed with the SEC on February 26, 2009). |
|
|
|
*Exhibit 10.2
|
|
Amendment No. 1 to Omnibus Agreement among Williams Partners L.P., Williams Energy
Services, LLC, Williams Energy, L.L.C., Williams Partners Holdings LLC, Williams
Discovery Pipeline LLC, Williams Partners GP LLC, Williams Partners Operating LLC
and (for purposes of Articles V and VI thereof only) The Williams Companies, Inc.
(attached as Exhibit 10.1 to Williams Partners L.P.s current report on Form 8-K
(File No. 001-32599) filed with the SEC on April 20, 2009). |
|
|
|
+Exhibit 31.1
|
|
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated
under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
+Exhibit 31.2
|
|
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated
under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
+Exhibit 32
|
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Each such exhibit has heretofore been filed with the SEC as part of the filing indicated and
is incorporated herein by reference. |
|
+ |
|
Filed herewith. |
|
# |
|
Management contract or compensatory plan or arrangement. |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
WILLIAMS PARTNERS L.P. |
|
|
(Registrant) |
|
|
|
|
|
|
|
By: Williams Partners GP LLC, its general partner |
|
|
|
|
|
|
|
/s/ Ted T. Timmermans |
|
|
|
|
|
|
|
|
|
Ted. T. Timmermans |
|
|
|
|
Controller (Duly Authorized Officer and Principal |
|
|
|
|
Accounting Officer) |
|
|
April 30, 2009
34
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
*Exhibit 3.1
|
|
Certificate of Limited Partnership of Williams Partners L.P. (attached as Exhibit
3.1 to Williams Partners L.P.s registration statement on Form S-1 (File No.
333-124517) filed with the SEC on May 2, 2005). |
|
|
|
*Exhibit 3.2
|
|
Certificate of Formation of Williams Partners GP LLC (attached as Exhibit 3.3 to
Williams Partners L.P.s registration statement on Form S-1 (File No. 333-124517)
filed with the SEC on May 2, 2005). |
|
|
|
+Exhibit 3.3
|
|
Amended and Restated Agreement of Limited Partnership of Williams Partners L.P.
(including form of common unit certificate), as amended by Amendments Nos. 1, 2,
3, 4 and 5. |
|
|
|
*Exhibit 3.4
|
|
Amended and Restated Limited Liability Company Agreement of Williams Partners GP
LLC (attached as Exhibit 3.2 to Williams Partners L.P.s current report on Form
8-K (File No. 001-32599) filed with the SEC on August 26, 2005). |
|
|
|
*#Exhibit 10.1
|
|
Director Compensation Policy dated November 29, 2005, as revised January 26, 2009
(attached as Exhibit 10.8 to Williams Partners L.P.s annual report on Form 10-K
(File No. 001-32599) filed with the SEC on February 26, 2009). |
|
|
|
*Exhibit 10.2
|
|
Amendment No. 1 to Omnibus Agreement among Williams Partners L.P., Williams Energy
Services, LLC, Williams Energy, L.L.C., Williams Partners Holdings LLC, Williams
Discovery Pipeline LLC, Williams Partners GP LLC, Williams Partners Operating LLC
and (for purposes of Articles V and VI thereof only) The Williams Companies, Inc.
(attached as Exhibit 10.1 to Williams Partners L.P.s current report on Form 8-K
(File No. 001-32599) filed with the SEC on August 20, 2009). |
|
|
|
+Exhibit 31.1
|
|
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated
under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
+Exhibit 31.2
|
|
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated
under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
+Exhibit 32
|
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Each such exhibit has heretofore been filed with the SEC as part of the filing indicated and
is incorporated herein by reference. |
|
+ |
|
Filed herewith. |
|
# |
|
Management contract or compensatory plan or arrangement. |
35