Williams evades potential bankruptcy filing through asset divestiture plan

By OGJ editors

HOUSTON, Aug. 13 -- Williams Cos. Inc. earlier this month announced a number of transactions designed to resolve some its liquidity problems. The Tulsa-based company—along with other energy merchants—has been under pressure to gain the capital needed to reduce its debt and strengthen its balance sheet (OGJ, Aug. 5, 2002, p. 30). Late last month, Williams reported a second quarter loss of $497 million attributable to its energy-trading unit.

"The company's top priorities have been to improve our financial position and resolve regulatory issues facing the company," said Steve Malcolm, Williams chairman, president, and CEO. "These significant financial achievements. . .demonstrate that we are gaining traction in our efforts to move forward on a stronger foundation," he said.

The transactions amounted to net cash proceeds for the financially strapped Williams of $1.4 billion from asset sales and $2 billion in secured financing, the company said.

The transactions include:

-- Houston-based Enterprise Products Partners LP said it has completed the acquisition of Mid-America Pipeline Co. and Seminole Pipeline Co. from affiliates of Williams for $1.2 billion in cash.

-- EnCana Oil & Gas (USA) Inc., a unit of EnCana Corp. of Calgary, will acquire developed and undeveloped natural gas properties in Jonah field in Wyoming from a unit of Williams for $350 million.

-- Dominion Resources Inc., Richmond, Va., has agreed to pay $217 million to acquire Cove Point LNG LP, owner of the Cove Point, Md., LNG terminal, the largest LNG import facility in the US. Late last year, the US Federal Energy Regulatory Commission affirmed an earlier decision to allow the Cove Point terminal to reopen in 2003 (OGJ Online, Dec. 20, 2001).

Malcolm said, "Tough times require tough decisions," adding that the company would continue with a plan to sell other "nonstrategic" assets.

Williams also inked a $1.1 billion credit agreement that would provide for an amended $700 million secured revolving credit facility and a new $400 million letter of credit facility. In addition, the company signed a $900 million senior secured credit agreement with a group of investors led by Lehman Bros. Inc. and Berkshire Hathaway. The facility is secured by "substantially all" of the oil and gas interests of Denver-based Barrett Resources Corp., which Williams acquired last year (OGJ Online, May 7, 2001).

Despite the asset divestitures, Williams informed its employees Aug. 7 that staff cuts at the company's London office were "likely," adding that it has proposed Sept. 12 as the date by which the office would "cease operations."

Enterprise purchase
The Enterprise unit's acquisition includes the purchase of a 98% ownership interest in Mapletree LLC, which wholly owns the Mid-America system—a 7,226 mile, 850,000 b/d natural gas liquids pipeline. Also acquired will be several propane terminals.

The Mid-America system comprises three pipeline sections: the 2,548 mile Rocky Mountain system, which transports mixed NGL extracted from natural gas production in the Rocky Mountain Overthrust and San Juan basin areas to Hobbs, Tex.; the 2,740 mile Conway North system, which links the NGL market hub in Conway, Kan., with petrochemical and refining plants as well as propane markets in the upper Midwest; and the Conway South system, which joins the Conway hub with refineries in Kansas and also carries mixed NGL from Conway to Hobbs.

Enterprise also purchased a 98% ownership interest in Williams unit Oaktree LLC, which owns an 80% equity interest in Seminole Pipeline. The Seminole system carries mixed NGL and NGL products from Hobbs and the Permian basin along a 1,281 mile route to Mont Belvieu, Tex. Seminole transports an average of 260,000 b/d of NGL.

EnCana's purchase
The properties being acquired by EnCana Oil & Gas are estimated to hold 600 bcfe of natural gas and associated NGL reserves, about 96% of which is gas. Presently, the properties are producing about 135 MMcfed, EnCana said. The acquisition increases by 50% EnCana's interest in Jonah field and increases its production from the field to more than 400 MMcfed, the company said.

EnCana, which was formed earlier this year through the merger of Alberta Energy Co. Ltd. (AEC) and PanCanadian Energy Corp. (OGJ Online, Jan. 28, 2002), first became involved in Jonah field in 2000 when AEC acquired McMurry Oil Co. (OGJ Online, May 3, 2000). Jonah field, which was discovered in 1993, is estimated to contain 3 tcf of gas reserves.

Dominion's Cove Point deal
Dominion's agreement to acquire the Cove Point terminal includes the purchase of an 87 mile pipeline. The deal is expected to close in mid-September, Dominion said.

For Williams, the terminal's sale is expected to hew the company's capital expenditures by roughly $105 million for the rest of this year and 2003.

The terminal, which lies on more than 1,000 acres of land on the western shore of the Chesapeake Bay near Baltimore, is the largest in the US, with 5 bcf of storage capacity and 1 bcfd of send out capacity. An additional 2.5 bcf of storage capacity is expected to be in service at the site by 2004.

When Dominion acquires the facility, Dominion Energy will operate it.

London layoffs
News of Williams's plan to close its London office follows close on the heels of an announcement to continue to trim down its "financial commitment and exposure to its energy marketing and risk management business" in the US and elsewhere.

"Over the last several months, significant turmoil in the energy trading sector has impacted our ability to trade and compete for new structured energy transactions," said Tim Loposer, Williams president of European energy marketing and trading. "While we are still working on two parallel paths—seeking a joint venture partner, and selling all or portions of our energy portfolio—we know that the marketing and trading group will be a much smaller organization going forward," he said.

Shortly after Williams revealed its divestiture plan, Fitch Ratings released a research note that called the planned transactions "clearly positive," adding that the deals would "mitigate the near-term financial hurdles" facing the company. Fitch noted that Williams's business, credit, and cash flow profile "continues to evolve."

Separately, Merrill Lynch said that Williams's latest actions would effectively remove any "bankruptcy questions off the table." Merrill Lynch added that it expected the company to divest itself of another $2.3 billion worth of noncore and underperforming assets by yearend.

"We expect (Williams) is going back to its roots in 2003," Merrill Lynch said, referring to the company's start as an integrated natural gas pipeline and energy services company in the mid-1990s. Merrill Lynch said that its list of potential assets that could be placed on the selling block include some of Williams's refineries, its Canadian midstream assets, and its Central natural gas pipeline.

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