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Williams facing 'growing pains' in bid for wider investor pool, CEO says

Williams Cos. Inc. is experiencing "growing pains" as it moves to attract generalist investors amid a broader energy sector slump, President and CEO Alan Armstrong said.

"It's really hard to ... move out of the language that's very typical to our industry and speak more to ... investors, and so I would say we're having some growing pains on that communication front," he said during a Sanford C. Bernstein conference on May 30 in New York City. "There's a lot of meetings that you have and you start talking about gathering and somebody slows you down and says, 'What do you mean by gathering?' And so I would just say, we have to really kind of pull ourselves back and learn to do a better job of communicating."

The North American pipeline heavyweight was an early mover during the midstream industry's 2018 pivot away from the traditional master limited partnership model in favor of attracting a broader pool of shareholders that have typically avoided the structure's complicated tax status. Armstrong added that Williams has traveled to Europe and Asia to court new investors since the company's C-corporation conversion.

The energy industry's stock price downturn, however, is sidelining Williams' commitment to speaking a new language. A dozen broader energy exchange-traded funds tracked by S&P Global Market Intelligence saw $336.4 million in combined net outflows in April, even though the price of West Texas Intermediate crude oil gained 6.3% that month to settle at $63.91 per barrel on April 30.

"We get stuck into an energy sector fund, whether we like it or not, and when that sells off, we get sold off," Armstrong said. "I would also say the fact that we're one of the bigger, more liquid C-corps in the space tends to be negative for us when energy gets sold off because we're one of the [bigger] liquid names that people can dump. And so ... when energy is getting sold off, I think we get penalized as much as anybody on that."

Since completing its structural simplification on Aug. 10, 2018, Williams shares have dipped over 16% to settle at $26.63 per unit on May 30.

Despite that share price decline, Williams remains focused on building out its infrastructure with a discerning focus on the Permian Basin. The CEO was skeptical that negative gas prices and rising flaring in the booming Permian Basin would be enough to justify an additional long-haul pipeline out of West Texas or New Mexico absent a consolidation of proposed projects.

"[It is] really hard to name a pipeline that was a point A to point B supply-push pipeline that isn't underwater 10 years later," he said. "There really hasn't been an example of pipelines after the [10-year-mark] being able to hold their tariff, and so we ... for a 12% or 13% return, we just don't think the risk profile makes a lot of sense there."

Williams is focusing instead on demand for low-priced natural gas to lock in its proposed 2-Bcf/d Bluebonnet pipeline, but Armstrong said shippers would "be crazy" to sign up for more capacity out of the Permian without taking a more long-term view.

"You're the guy that flattens the basis for everybody else, and you're left with a long-term payment on the basis differential even though it turns around and goes flat on you," he said. "If I was a producer, if I was sitting on a board for a producer, I'd be telling them, 'Don't take that capacity.'"