Analyzing Williams Partners’ Geismar Olefins Plant Sale

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Analyzing Williams Partners’ Geismar Olefins Plant Sale PART 2 OF 4

How Williams Partners Expects to Benefit from Geismar Plant Sale

Williams Partners’ commodity price

The Geismar Olefins Plant sale is expected to lessen Williams Partners’ (WPZ) crude oil exposure. Its ethylene margins have fallen significantly compared to the levels before the rout in energy prices. US ethylene demand is expected to rise in the coming years, driven by a strong demand from the European and Asian markets. However, ethylene prices remain uncertain due to uncertainty in the price of crude oil.

Williams Partners will continue to focus on its fee-based NGL (natural gas liquids) transportation and storage business. Enterprise Products Partners (EPD) and DCP Midstream (DCP) are among the midstream MLPs that are also bullish on strong NGL demand. For details on EPD’s expansion plans, read What Will Drive Enterprise Products Partners’ Growth?

How Williams Partners Expects to Benefit from Geismar Plant Sale

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According to Alan Armstrong, Williams Partners’ CEO (chief executive officer), “When the Williams Olefins transaction closes, we expect to be at 97 percent fee-based revenues driven largely by natural gas volumes. Today’s announcements further strengthen our financial position to support Williams’ peer-leading, low-risk growth portfolio.”

Williams Partners’ leverage

High leverage has been a major concern for Williams Partners for quite some time. However, the situation improved following the asset sales and the financial reorganization plan announced at the start of 2017. Before the Geismar Olefins Plant deal, Williams Partners had completed the sale of its Canadian business.

About ~$850.0 million of the cash proceeds from the Geismar transaction will be used for term loan repayment, while the remaining amount will be used for funding capital projects. Fitch Ratings has signaled a credit rating upgrade following the completion of the Geismar asset sale.

Williams Partners earlier announced a target leverage ratio of less than 4.5x for 2017 after considering its $2.1 billion–$2.8 billion growth capital spending target for 2017. However, that might change in the company’s revised guidance, which WPZ expects to release on its Analyst Day on May 11, 2017.


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