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Williams' deleveraging strategy benefiting from lower interest rates, CEO says


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Williams' deleveraging strategy benefiting from lower interest rates, CEO says

Williams Cos. Inc. President and CEO Alan Armstrong said lower interest rates are fueling interest from potential asset buyers and joint venture partners, helping the company continue to shed debt in anticipation of slower growth across the sector.

"The interest rates are so low out there, and ... as long as you have the predictability of those cash flows, that kind of low-cost money is going to be available, and we continue to be impressed by that in terms of various transactions that we're involved in," Armstrong said during an Aug. 1 earnings conference call. "Even if it wasn't for ... the deleveraging benefit that comes from that, we would be looking at those kind of opportunities anyway, just because we don't feel like our gathering and processing assets are valued appropriately."

Williams during the second quarter completed both the sale of a 50% stake in its gas gathering joint venture in the Powder River Basin to partner Crestwood Equity Partners LP for $484.6 million in cash and a $3.8 billion joint venture with the Canada Pension Plan Investment Board in the Marcellus and Utica shales.

The gap between public equity values and what private equity buyers are willing to pay for assets "continues to provide an opportunity for us to gain value for our shareholders" when it comes to transacting with entities like the Canada Pension Plan Investment Board, Armstrong added, noting that the pipeline company now expects its year-end debt/EBITDA to be below 4.5x, below the original guidance of 4.75x.

On the growth side, Williams does not expect the plunging natural gas prices to affect its spending going into 2020, according to CFO and Senior Vice President John Chandler.

"Our capital that we have out there today is backed by rate increases or [minimum volume commitments], and so if there was further pullback that occurred ... a lot of that capital that we're talking about really wouldn't move all that much unless there was some kind of renegotiation, because most of it underpinned by obligations on the other side," he said during the call.

Chandler added that outside of the Northeast, "demand-pull projects, which will be the bulk of our capital in 2020 ... are further improved by low gas prices."

One of those projects is Transcontinental Gas Pipe Line Co. LLC's expansion project to move more gas out of Appalachia. Williams on July 31 asked the Federal Energy Regulatory Commission to authorize the interstate Leidy South pipeline designed to connect supplies in the Utica and Marcellus regions along the Atlantic seaboard by winter 2020-2021.

Williams is also counting on LNG facilities to boost demand during the second half of this year. "We've seen continued delays in the startup of nearly all of the LNG terminals that were planned to come online in the first half of [2019], but that just means we're going to see an even stronger pull on natural gas in the back half," Armstrong said.

So far, Kinder Morgan Inc.'s Elba Island LNG export facility in Georgia is already producing liquefied gas, while the Freeport LNG Development LP terminal in Texas is flowing gas to its first train and the Sempra Energy-led Cameron LNG LLC recently asked FERC for authorization to enter its first train into commercial service.

Producers like EQT Corp., which is one of Williams' customers, has made clear that it plans to renegotiate its midstream contracts to get lower rates for gathering, processing and transportation amid the gas price downturn.

Williams on July 31 posted second-quarter adjusted EBITDA of $1.24 billion, up from $1.11 billion in the prior-year period. The S&P Global Market Intelligence consensus estimate of adjusted EBITDA was $1.21 billion.

The company's distributable cash flow for the quarter was $867.0 million, an increase from $637.0 million a year earlier.