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An Analysis of Williams Partners’s Cash Flow Measures

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Williams Partners’s distributable cash flows

Williams Partners’s (WPZ) distributable cash flow increased to $739 million in 1Q16 compared to $646 million 1Q15, driven by higher adjusted EBITDA. However, this was slightly offset by higher interest expense.

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Williams Partners’s distributions

WPZ declared a distribution of $0.85 per unit for 4Q15. WPZ’s distributions have remained flat for the fifth consecutive quarter. The partnership is expected to cover its distributions in the coming quarters, driven by increased fee-based cash flows from projects placed into service and slight recovery in commodity prices.

Currently, the partnership is trading at a distribution yield of 10.4%. Among WPZ’s peers, EnLink Midstream Partners (ENLK), Energy Transfer Partners (ETP), and DCP Midstream Partners (DPM) trade at distribution yields of 10.3%, 11.2%, and 9.1%, respectively.

WPZ’s flat distributions and recent distributable cash flow growth resulted in slight improvement of coverage ratio. Its 1Q16 coverage stood at ~1.0x. Further improvement in its coverage ratio and resumption of distribution growth would depend on WPZ’s ability to successfully execute its organic projects and any recovery in commodity prices over the next one to two years.

NuStar Energy (NS) and Martin Midstream Partners (MMLP) are among the midstream MLPs that kept their distributions flat in the recent quarter.

Williams Partners’s capital expenditure

WPZ expects to spend $2 billion on growth projects in 2016. According to a related press release, “The $2 billion growth capital funding needs include $1.3 billion for Transco expansions and other interstate pipeline growth projects, most of which are fully contracted with investment-grade customers.

“Non-interstate pipeline growth capital funding needs total $700 million, primarily reflecting relatively modest additional investments across the partnership’s gathering and processing systems. Capital spending for gathering and processing in 2016 will be limited to known new producer volumes, including wells drilled and completed awaiting connecting infrastructure.”

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