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Williams Companies’ Distribution Cut and Reinvestment Plan

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2Q16 distributions

Williams Companies (WMB) and Williams Partners (WPZ) declared a distribution of $0.64 and $0.85 per unit, respectively, for 2Q16. Williams Partners’ distributable cash flow rose by 5.1% YoY in 2Q16. This resulted in a slight improvement in the partnership’s distribution coverage.

Williams Partners is expected to keep its distribution flat for the coming quarters. At the same time, William Companies decided to cut its quarter distribution to $0.2 per share in effect from 3Q16. Williams Companies expects to save $1.3 billion annually from this distribution cut.

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Williams Companies’ reinvestment plans

Williams Companies expects to reinvest $1.7 billion in Williams Partners through 2017 to support its growth plans and reduce leverage. According to the press release, “Williams plans to reinvest $500 million into Williams Partners in 2016 including $250 million in the third quarter via a private purchase of common units with the balance in the fourth quarter via the DRIP. An additional $1.2 billion is planned to be reinvested in 2017 via the DRIP.” DRIP here refers to Williams Partners Dividend Reinvestment Plan. The DRIP plan, which is expected to begin in 3Q16, would allow WPZ’s unitholders to reinvest “all or a portion of the quarterly cash distributions.”

Williams Companies closed 6.0% lower ahead of its after-market earning release on August 1. At the same time, Williams Partners was down 7.1%. Williams Companies’ share might continue to slide the following day. Williams Companies has lost 12.3% of its market value since the beginning of 2016. At the same time, the Alerian MLP ETF (AMLP), which is comprised of 24 midstream energy MLPs, has returned 4.6%.

Canadian business sale

Williams Companies and Williams Partners are expecting to close the sale of their Canadian business in 3Q16. Williams Partners expects to receive $800 million from the proposed $1 billion asset sale. This is expected to reduce Williams Partners’ “external capital-funding needs.”

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