Williams and Williams Partners Fourth Quarter Earnings Call

Transcription

1 Williams and Williams Partners Fourth Quarter Earnings Call February 16, 2017

2 2016 Review and Recent Accomplishments > Strong operating and financial performance; Cash Flow from Operations up significantly, exceeded 2016 Adjusted EBITDA guidance > Continued execution on multi-year, multi-billion dollar project backlog > Ongoing transformation of asset portfolio, now almost exclusively generating fee-based, predictable, stable cash flows Canadian asset sale completed Barnett and Mid-con region gathering agreements restructured Geismar process positively progressing > Board refreshment plan completed, with the appointment of seven new, highly qualified directors during 2H 2016 > Post year-end developments support steady-growth strategy Financial repositioning transactions strengthened the company and enhanced prospects for longterm growth Atlantic Sunrise FERC certificate received; Gulf Trace placed in-service six months early Accretive transaction: Non-operated Permian interest for Northeast PA Marcellus assets Significant de-leveraging at both Williams and Williams Partners > Visible valuation discount remains, despite strong 2016 stock and unit price performance WMB stock price appreciation of 34% since June 30, 2016 WPZ unit price appreciation of 18% since June 30, Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

3 WPZ 2016 Results: Adjusted EBITDA Exceeded Guidance with Continued Growth GAAP Measures: 2016 CFFO up on Barnett contract restructuring and operational performance > 2016 Net Income/(Loss) attributable to WPZ of $431 million vs. $(1,449) million for 2015 > 2016 Segment Modified EBITDA ($MM): Atlantic Gulf $1,600; Central $807; Northeast G&P $840; West $649; NGL- Petchem $(23) Non-GAAP Measures: Adjusted EBITDA up 8%, all segments contribute > WPZ 2016 Adjusted EBITDA $4.4 B, up 8% > WPZ 2016 Segment Adjusted EBITDA Atlantic-Gulf increase driven by fee-based revenue growth and increased EBITDA from Discovery JV Central increase driven by cost savings, partially offset by decreased fee-based revenue Northeast G&P increase driven by fee-based revenue growth and cost savings West increase driven primarily by cost savings NGL-Petchem increase driven primarily by higher olefins margins from Geismar operations > WPZ 2016 DCF $3.0 billion, up $151 million or 5% vs Coverage ratio of 1.01x Segment Adjusted EBITDA ($MM): 2015 vs $112 $ MM Increase $13 $43 $6 $163 Note: This slide contains non-gaap financial measures. A reconciliation of all non-gaap financial measures used in this presentation to their nearest GAAP comparable financial measures are included at the back of this presentation. 3 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

4 4Q Q 2016 WPZ Fourth Quarter 2016 Results: Delivered Continued Growth GAAP Measures: 4Q CFFO up on Barnett contract restructuring, Modified EBITDA growth > 4Q 2016 Net Income/(Loss) attributable to WPZ of $145 million vs. $(1,644) million for 4Q 2015 > WPZ 4Q 2016 Segment Modified EBITDA ($MM): Atlantic Gulf $451; Central $340; Northeast G&P $202; West $170; NGL-Petchem $81 Non-GAAP Measures: Continued growth in adjusted EBITDA > WPZ 4Q 2016 Adjusted EBITDA $1,113 MM, up 5% > WPZ 4Q 2016 Segment Adjusted EBITDA Atlantic-Gulf increase driven by fee-based revenue growth and higher NGL margins Central $23mm unfavorable full-year true-up due to Barnett restructuring Northeast G&P increase driven primarily by cost savings and higher fee-based revenue West cost savings and higher NGL margins nearly offset decline in fee-based revenue NGL-Petchem increase driven by higher commodity margins, and cost savings > WPZ 4Q 2016 DCF $699 million, down $19 million or 3% vs. 4Q 2015 Coverage ratio 0.92x Segment Adjusted EBITDA ($MM): 4Q 2015 vs. 4Q 2016 $59 ($25) $3 ($4) $MM Increase $15 Note: This slide contains non-gaap financial measures. A reconciliation of all non-gaap financial measures used in this presentation to their nearest GAAP comparable financial measures are included at the back of this presentation. 4 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

5 Continued Execution Against Natural Gas Focused Strategy Recent Developments > Transco Atlantic Sunrise: Received FERC Certificate on ~1.7 Bcf/d fully-contracted expansion project designed to bring Pennsylvania gas to markets along Transco as far south as Alabama > Transco Gulf Trace in service: ~1.2 Bcf/d expansion serving Cheniere Sabine Pass LNG export terminal placed in service under budget and ahead of schedule > Transco Expansions under construction: ~1.6 Bcf/d of expansions under construction; Dalton (~448 MMcf/d), Hillabee Ph. 1 (~818 MMcf/d), New York Bay (~115 MMcf/d), and Virginia Southside 2 (~250 MMcf/d) > Transco Delivery Records: Peak day and three-day average deliveries of 13.7 Mdth/d Jan. 8 and 13.6 Mdth/d Jan 7-9 set new records for satisfying customer needs for natural gas > West Northwest Pipeline: Filed a pre-settled rate case with FERC on January 23; new rates will be effective on January 1, 2018 > Central Barnett: New gathering agreement executed Nov. 1 with Total E&P; MVCs collection risk exchanged for large cash payments received at closing; improved counter-party credit rating > Marcellus-for-Permian transaction: Adding to leading position in attractive growth area; significant increase in free cash flow > Northeast G&P Volumes: Daily volume records across northeast systems with strong winter pricing Coming soon > Geismar process: Expect final bids late first quarter 5 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

6 Marcellus-for-Permian Transactions Deliver Value and Enhance Natural Gas Focused Strategy > Transactions expected to be immediately accretive to Adjusted EBITDA, DCF and free cash flow > Increased ownership in growing Marcellus gathering position Williams Partners will acquire additional ~34% interest in two Bradford Supply Hub gathering systems (Rome and Liberty) (a) and receive $155 million cash from Western Gas ( WES ) Consideration: WPZ s 50% interest in the DBJV gathering business, operated by WES Williams Partners also agreed to sell its ~33% interest in 125 MMcf/d Ranch Westex processing plant to Anadarko Petroleum (a) for $45 million > Gaining scale in attractive natural gas producing basins Marcellus well-positioned for growth with large-scale gas takeaway projects, including Atlantic Sunrise, moving towards in-service Strong operating leverage to Marcellus volume growth (a) subject to customary JV partner rights 6 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

7 Financial Repositioning for Long-term Sustainable Growth Satisfied Equity Financing Needs Expect no external equity financing to fund current business plan Removes market risk and shifts focus to business performance Strengthened Coverage Lowered Leverage Increased coverage contributes to growth funding and further deleveraging WMB coverage of ~1.3x for 2017 plus 74% interest in WPZ s ~1.2x coverage yields WMB economic coverage of ~1.7x expected for 2017 Strengthened credit metrics for both WPZ and WMB Solidified ratings outlook at all agencies for both WPZ and WMB De-leveraging already underway from 3Q debt levels - WPZ debt reduction $1.1 Billion 4Q 16; additional $1.35 Billion Feb WMB Parent Co debt reduction $75 Million 4Q 16; additional ~$500 million expected in 2017 Created Competitive Cost of Capital WPZ cash cost of equity reduced by ~50% WPZ now has top quartile yield among MLP peers Volatile IDRs replaced with stable LP units; tax advantage for WMB Enables WPZ to capitalize on available growth opportunities Repositioning expected to enable greater long-term growth and improve valuation Note: This slide contains non-gaap financial measures. A reconciliation of all non-gaap financial measures used in this presentation to their nearest GAAP comparable financial measures are included at the back of this presentation. 7 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

8 WPZ Focus on High-quality Fee-based Revenue Drives Steady, Predictable EBITDA Performance Actions support cash flow stability > Capital program focused on Transco and other fee-based revenue ~68% of 2017 growth capital for regulated pipelines Remainder focused on other fee-based revenue > Declining commodity margin exposure Canada asset sales Geismar process (1) Adjusted EBITDA is a non-gaap financial measure. A reconciliation of Adjusted EBITDA to Net Income is included at the back of this presentation. 8 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

9 Attractive EBITDA Performance vs. Peers; Value Discount vs. Peers Valuation Considerations High-quality fee-based revenue, drives peer-leading stability and growth in WPZ Adjusted EBITDA Fully contracted, fee-based expansion projects and strong natural gas fundamentals underpin Williams expected future growth WMB owns controlling interest in WPZ and represents deeply liquid, institutional-friendly option to invest in WPZ s underlying business WMB trades at a discount to peers on a consolidated EV / 2017E EBITDA multiple WMB trades at a discount to the market value of its WPZ LP units less debt Note: PAGP has traded at a ~6% premium to its sum-of-theparts valuation since its simplification x Indexed Quarterly EBITDA (2) Indicates 4Q I/B/E/S Consensus Estimate (Not Yet Reported) 60 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 WPZ Peer A Peer B Peer C Peer D Peer E Peer F Peer G Peer H Peer I 17.3x C-Corp MLP 1. WPZ Peers Include: BWP, ENBL, EPD, ETP, KMI, MMP, PAA, SEP and TRP; WMB Peers comprised of ENB, ETE, EPD, KMI, OKE, MMP, TRGP and TRP 2. Historical EBITDA based on reporting disclosure for all companies; 4Q 2016 EBITDA based on actual results for WPZ and those peers who have filed 4Q earnings, and I/B/E/S consensus median estimates for all other peers 3. Market data as of 14 February WMB Consolidated EV / EBITDA multiple based on 4Q 2016 capitalization, guided EBITDA of $4.6Bn 16.0x WPZ Steady EBITDA Growth vs. WPZ Peers (1) WMB Consolidated EV / 2017E EBITDA Discount vs. WMB Peers (1,3) 15.2x 15.0x 14.8x 13.7x 13.7x Peer Mean: 14.8x WMB Current: 12.9x 9 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved. 12.9x 12.6x Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 WMB Peer 8 (4) $39.51 $28.89 WPZ

10 Natural Gas Focused Strategy, Advantaged Assets Position Williams for Continued Growth Compelling Market Fundamentals > Continued natural gas demand growth driven by LNG, Industrial, Power, Residential/Commercial, Mexican Export > Abundant low cost natural gas supplies readily available Uniquely Positioned Assets > Transco, nation s largest, fastest-growing interstate pipeline system; impossible to replicate > Largest gatherer in Marcellus and Utica (>6 Bcf/d); attractive, growing positions in other key supply basins Foundation for Long-term Growth > Capital spending focused on firm, contracted revenue opportunities > Financial repositioning creates competitive cost of capital and stable investment grade ratings > Well-positioned to continue capturing growth as opportunities emerge across our advantaged asset footprint 10 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

11 Appendix

12 WPZ and WMB Key Guidance Metrics EBITDA DCF 2017 $4.6 billion a 2017 $2.8 billion a WPZ Distribution & Growth Rate Cash Coverage Ratio 2017 Distribution Expected Growth Rate 2017 Cash Distribution Coverage Ratio $2.40 per L.P. unit 5% to 7% annual growth ~1.2x a Growth Capex 2017 Total WPZ 2017 Transco $2.1 to $2.8 billion $1.4 to $1.9 billion WMB c Leverage Dividend & Growth Rate Cash Coverage Ratio Consolidated Leverage 2017 Debt / EBITDA b < 4.50x 2017 Dividend Expected Growth Rate 2017 Dividend Coverage Ratio $1.20 per share 10-15% annual growth ~1.3x Consolidated 2017 Debt / EBITDA b < 5.25x This slide contains non-gaap financial measures. A reconciliation of all non-gaap financial measures used in this presentation to their nearest GAAP financial measures is included at the back of this presentation. a) EBITDA includes full year of Geismar operations. Also includes amortization of $240 million associated with the $820 million CHK/Barnett & MidCon contract restructure prepayments. DCF excludes amortization of $240 million associated with the $820 million CHK/Barnett & MidCon contract restructure prepayments. Assumes 2017 WTI oil price of approximately $55/bbl and a Henry Hub natural gas price of approximately $3.35/mmbtu b) Rating agency adjusted debt / EBITDA c) Williams does not expect to be a U.S. Federal cash income taxpayer through at least 2020, excluding taxes on any potential asset monetizations 12 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

13 WMB Benefits Significantly from WPZ Cash Flows WMB holds 74% interest in coverage retained at WPZ 13 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

14 Forward-looking Statements

15 Forward Looking Statements > The reports, filings, and other public announcements of The Williams Companies, Inc. (Williams) and Williams Partners L.P. (WPZ) may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to anticipated financial performance, management s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of All statements, other than statements of historical fact, included in this document that 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, seeks, could, may, should, continues, estimates, expects, forecasts, intends, might, goals, objectives, targets, planned, potential, projects, scheduled, will, assumes, guidance, outlook, in service date and other similar expressions. These forward-looking statements are based on management s beliefs and assumptions and on information currently available to management and include, among others, statements regarding: Levels of cash distributions by WPZ with respect to limited partner interests; Levels of dividends to Williams stockholders; Future credit ratings of Williams, WPZ and their affiliates; Amounts and nature of future capital expenditures; Expansion and growth of Williams business and operations; Financial condition and liquidity; Business strategy; Cash flow from operations or results of operations; Seasonality of certain business components; Natural gas, natural gas liquids, and olefins prices, supply, and demand; and Demand for our services. > 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 document. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following: Whether WPZ will produce sufficient cash flows to provide the level of cash distributions that Williams expects; Whether Williams is able to pay current and expected levels of dividends; Whether we will be able to effectively execute our financing plan including the receipt of anticipated levels of proceeds from planned asset sales; Whether Williams will be able to effectively manage the transition in its board of directors and management as well as successfully execute its business restructuring; Availability of supplies, including lower than anticipated volumes from third parties served by our midstream business, and market demand; Volatility of pricing including the effect of lower than anticipated energy commodity prices and margins; Inflation, interest rates and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on customers and suppliers); The strength and financial resources of our competitors and the effects of competition; Whether we are able to successfully identify, evaluate and timely execute capital projects and other investment opportunities in accordance with our forecasted capital expenditures budget; Our ability to successfully expand our facilities and operations; Development of alternative energy sources; Availability of adequate insurance coverage and the impact of operational and developmental hazards and unforeseen interruptions; 15 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

16 Forward Looking Statements (cont d) The impact of existing and future laws, regulations, the regulatory environment, environmental liabilities, and litigation, as well as our ability to obtain permits and achieve favorable rate proceeding outcomes; Williams costs and funding obligations for defined benefit pension plans and other postretirement benefit plans; WPZ s allocated costs for defined benefit pension plans and other postretirement benefit plans sponsored by its affiliates; Changes in maintenance and construction costs; Changes in the current geopolitical situation; Our exposure to the credit risk of our customers and counterparties; Risks related to financing, including restrictions stemming from debt agreements, future changes in credit ratings as determined by nationally-recognized credit rating agencies and the availability and cost of capital; The amount of cash distributions from and capital requirements of our investments and joint ventures in which we participate; Risks associated with weather and natural phenomena, including climate conditions and physical damage to our facilities; Acts of terrorism, including cybersecurity threats and related disruptions; and Additional risks described in our filings with the Securities and Exchange Commission (SEC). > Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or 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 document. 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 Williams and WPZ s Annual Reports on Form 10-K filed with the SEC on February 26, 2016 and in Part II, Item 1A. Risk Factors in our Quarterly Reports on Form 10-Q available from our offices or from our website at 16 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

17 Non-GAAP Reconciliations

18 Non-GAAP Reconciliations Non-GAAP Disclaimer > This presentation includes certain financial measures adjusted EBITDA, adjusted income ( earnings ), adjusted earnings per share, cash available for dividends, dividend coverage ratio, distributable cash flow and cash distribution coverage ratio that are non-gaap financial measures as defined under the rules of the Securities and Exchange Commission. > Our segment performance measure, modified EBITDA is defined as net income (loss) before income (loss) from discontinued operations, income tax expense, net interest expense, equity earnings from equity-method investments, other net investing income, remeasurement gain on equity-method investment, impairment of equity investments and goodwill, depreciation and amortization expense, and accretion expense associated with asset retirement obligations for nonregulated operations. We also add our proportional ownership share (based on ownership interest) of modified EBITDA of equity-method investments. > Adjusted EBITDA further excludes items of income or loss that we characterize as unrepresentative of our ongoing operations and may include assumed business interruption insurance related to the Geismar plant. Management believes this measure provides investors meaningful insight into results from ongoing operations. > For Williams, cash available for dividends is defined as cash received from its ownership in MLPs, cash received (used) by its NGL & Petchem Services segment (other than cash for capital expenditures) less interest, taxes and maintenance capital expenditures associated with Williams and not the underlying MLPs. We also calculate the ratio of cash available for dividends to the total cash dividends paid (dividend coverage ratio). This measure reflects Williams cash available for dividends relative to its actual cash dividends paid. We further adjust these metrics to include Williams proportionate share of WPZ s distributable cash flow in excess of distributions paid, resulting in Williams Economic DCF and Economic Coverage Ratio. > For Williams Partners L.P., we define distributable cash flow as adjusted EBITDA less maintenance capital expenditures, cash portion of interest expense, income attributable to noncontrolling interests and cash income taxes plus WPZ restricted stock unit non-cash compensation and certain other adjustments that management believes affects the comparability of results. Adjustments for maintenance capital expenditures and cash portion of interest expense include our proportionate share of these items of our equitymethod investments. > For Williams Partners L.P., we also calculate the ratio of distributable cash flow to the total cash distributed (cash distribution coverage ratio). This measure reflects the amount of distributable cash flow relative to our cash distribution. We have also provided this ratio calculated using the most directly comparable GAAP measure, net income. > This presentation is accompanied by a reconciliation of these non-gaap financial measures to their nearest GAAP financial measures. Management uses these financial measures because they are accepted financial indicators used by investors to compare company performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of assets and the cash that the business is generating. > Neither adjusted EBITDA, adjusted income, cash available for dividends, nor distributable cash flow are intended to represent cash flows for the period, nor are they presented as an alternative to net income or cash flow from operations. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles. 18 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

19 WPZ 2017 Guidance Reconciliation of GAAP Net Income to Modified EBITDA and Non-GAAP Adjusted EBITDA and Distributable Cash Flow 19 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

20 WPZ Non-GAAP Reconciliations Reconciliation of Non-GAAP Adjusted EBITDA and Distributable Cash Flow to GAAP Net Income 20 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

21 WPZ Non-GAAP Reconciliations Reconciliation of Non-GAAP Adjusted EBITDA and Distributable Cash Flow to GAAP Net Income (cont d) 21 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

22 WPZ Non-GAAP Reconciliations Reconciliation of Modified EBITDA to Non-GAAP Adjusted EBITDA 22 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.

23 WPZ Non-GAAP Reconciliations Adjustments to Modified EBITDA by Segment 23 Williams and Williams Partners 4Q 2016 Earnings Release February 16, The Williams Companies, Inc. All rights reserved.