Why Williams Companies Reduced Its 2016 Capital Program Guidance



Williams Companies’ market performance

Williams Companies (WMB) has lost 73.2% of its market value in the past year. WMB has lost 50% since the beginning of 2016. Three days ago, WMB crashed 34.8% in a single trading session on rumors that Chesapeake Energy (CHK), one of the largest US drillers, is pursuing bankruptcy. CHK one of Williams’ largest customers. For more detail, read Why Energy Transfer and Williams Companies Crashed Yesterday.

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WMB’s midstream MLP subsidiary, Williams Partners (WPZ), has lost 69.8% in the past year. WPZ’s peers EnLink Midstream Partners (ENLK), Energy Transfer Partners (ETP), and Western Gas Partners (WES) have lost 69.9%, 63.5%, and 61.2%, respectively, over the same timeframe. The Alerian MLP ETF (AMLP) comprises 22 midstream energy MLPs. It’s fallen 50.5%, indicating general weakness in the midstream sector.

Uncertainty surrounding the ETE–WMB merger

The current spread between Energy Transfer Equity’s (ETE) offer price and WMB’s share price likely highlights the uncertainty surrounding the merger announced in September. ETE’s recent decision to replace its CFO, Jamie Welch, added to the uncertainty. The 60.7% and 77.4% falls in WMB and ETE’s respective prices since the merger announcement point to the overall negative investor sentiment toward the deal.

WMB and WPZ’s 2016 capex and financing plans

WMB and WPZ announced their 2016 capex and financing plans in a recent press release. WPZ expects to spend ~$1 billion, or 32%, less than its previous guidance of ~$3 billion. According to the press release, “The reduction in 2016 capital and investment expenditures reflects project deferrals, delays and cancellations resulting from the current commodity price environment as well as sharply higher costs of capital.”

The Williams franchise doesn’t expect to use the debt or equity markets in 2016 to fund its capital program. The 2016 capital program is expected to get funding through the $1 billion senior note offering by Transco, WPZ’s wholly owned subsidiary, and “asset monetizations.”

At the same time, WPZ also reported its 4Q15 distribution of $0.85 per unit. WPZ’s distribution remained flat compared to the previous quarter.


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