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Williams Partners Concludes Geismar Olefins Unit Divestment

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Midstream infrastructure provider Williams Partners LP recently concluded the divestment of its 100% membership stake in Williams Olefins to NOVA Chemicals. It is to be noted that Williams Olefins controls 88.46% ownership in the Geismar, LA, olefins unit and related facilities.

Williams Partners received $2.1 billion in cash which will likely get utilized for financing growth projects and also for clearing $850 million in term loan. On top of that, along with the closure of the divestment, affiliates of Williams Partners have inked accords with NOVA Chemicals for supplying feedstock to the Geismar olefins plant for a long period of time through the U.S. Gulf Coast ethane pipeline system.

We appreciate the sale of the Olefins plant as it reflects the partnership’s strategy of shifting focus primarily toward the stable fee-based natural gas transportation business. The agreements are also backing Williams Partners’ stable fee-based income for a length of time. Investors should know that the partnership expects 97% of its future gross margin to be generated from fee-based operations.

Tulsa, OK-based Williams Partners is a publicly traded master limited partnership with midstream infrastructure assets that are involved in transporting, gathering and processing natural gas and natural gas liquids. The partnership’s natural gas infrastructure assets comprise the fastest growing pipeline networks that carry the highest volumes of natural gas in the U.S. from the best supply basins in North America.

However, we are concerned about Williams Partners’ high debt level, which makes it vulnerable to an extended drop in commodity prices. Also, the stock has underperformed the Zacks categorized Energy & Pipeline Mlp industry over the last one year. During the aforesaid period, the partnership gained 12.4% as compared with a 14% gain of the broader industry.

Zacks Rank & Stocks to Consider

Williams Partners currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months. 

A few better-ranked players in the energy sector are Canadian Natural Resources Limited (CNQ - Free Report) , Pembina Pipeline Corporation (PBA - Free Report) and W&T Offshore Inc. (WTI - Free Report) . Canadian Natural and Pembina Pipeline sport a Zacks Rank #1 (Strong Buy), while W&T Offshore carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.        

We expect year-over-year earnings growth of almost 725% at Canadian Natural in 2017.  

Pembina Pipeline’s 2017 earnings will likely grow over 87% year over year.

W&T Offshore had an average positive earnings surprise of 69.21% for the last four quarters.

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