Williams creates giant natural gas partnership
Aspen, CO Colorado
TULSA, Okla. – Williams Cos., already one of the nation’s largest producers of natural gas, said Tuesday it will create one of the biggest natural gas partnerships in the nation by combining its pipeline and processing units.
The deal, valued at about $10 billion plus $2 billion in debt, is the latest in an industry trying to capitalize on the increasing role of natural gas in powering U.S. homes and businesses.
Williams, based in Tulsa, Okla., will get about $3.5 billion in cash from Williams Partners, its midstream natural gas processing company, to pay down debt. Williams also is offering to purchase up to $3 billion of its debt in a cash tender offer.
A key asset Williams brings to the partnership is the Texas Transcontinental Gas pipeline, which runs to Pennsylvania’s rich Marcellus Shale. It carries gas from the Gulf Coast through southern and mid-Atlantic states to New Jersey and New York City as well as the Northwest.
The new, larger Williams Partners comes at a time when many energy companies are angling for a piece of the rapidly growing natural gas market.
Two weeks ago, Chesapeake Energy said it was taking on French oil company Total as a partner to help develop deep fields in Texas. Last month, Exxon Mobil said it will buy XTO Energy in a deal valued at $31 billion.
Much of the focus in the deals, including Monday’s announcement, is the huge reserves that the U.S. has of natural gas. Domestic and international energy companies have rushed in as estimates of supplies have grown sharply.
Williams CEO Steve Malcolm said that passing along pipeline and midstream assets to Williams Partners will boost capital for the parent company as it races against larger competitors to expand its natural gas finds.
In a conference call with analysts, Malcolm said the goal is to create a simpler company with greater access to capital that can be used for exploring and producing gas, including the Piceance basin in Colorado that Williams executives believe could be as productive as any of the major shale developments in the U.S.
“We know exactly how we’re going to grow,” he said.
Williams Partners will also give its parent company about 203 million limited-partner units – valued at $6.3 billion based on Friday’s closing price. Williams Cos. stake in Williams Partners grows from 24 percent to 80 percent.
The company expects Williams Partners will become a larger, diversified master limited partnership with better access to debt and financial markets. Master limited partnerships have certain tax benefits because the partnership does not pay taxes on its profit, but when unitholders receive distributions.
Williams is one of the biggest natural gas operations in the U.S., producing enough gas for more than 4 million homes per day and transporting about 12 percent of the nation’s daily supply of natural gas.
Shares of Williams rose $1.77, or 8.3 percent, to $23.14 in midday trading. Earlier shares reached a new 52-week high of $23.76. Williams Partners shares shot up $4.91, or 16 percent, to $35.70, after touching a new 52-week high of $36.14. Williams Pipeline Partners shares gained $3.50, or 15 percent, at $26.86. Earlier the shares hit $27.14, the highest price over the past year.
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