Must-know: Key concerns for Williams Companies in 2014

Market Realist

Everything investors need to know about Williams Companies (Part 11 of 12)

(Continued from Part 10)

Long-term capital investment is more heavily loaded than near-term capital investment

As the graph below shows, Williams Companies’ (WMB) overall capex is projected to stay low during 2014 to 2016. Many of the company’s expansion projects are scheduled to start operations in late 2016 and 2017.

During the next two to three years, production may not increase substantially.

Check out the preceding parts of this series to read about WMB’s growth plans.

Key stocks and ETFs

Kinder Morgan Inc. (KMI), Spectra Energy (SE), and Enterprise Products Partners (EPD) are some of the other energy providers that operate regulated energy pipelines. Some of these companies are components of the Alerian MLP ETF (AMLP).

Ethane rejection

WMB’s ethane recoveries in 2013 reduced due to unfavorable ethane economics. Lower NGL prices, coupled with higher natural gas prices, led to ethane production becoming uneconomical.

This is called “ethane rejection,” when ethane is left in the natural gas stream instead of being extracted.

In 2013, segment revenues and profits in Williams Partners decreased by ~8% and 11%, respectively. A 44% lower average ethane per-unit sales price was one of the major reasons for lower sales and margins.

WMB employs three kinds of contracts:

  1. Fee-based contracts
  2. Percentage-of-proceeds contracts
  3. Keep-whole contracts

In order to counter adverse ethane economics, WMB has been steadily increasing its non-ethane production. Non-ethane products typically have higher margins.

On the other hand, if ethane prices start to rise while natural gas prices stay relatively low, ethane recoveries will increase, leading to higher volumes and higher margins.

FERC rate case concerns

WMB’s natural gas pipelines businesses contain both interstate and intrastate pipelines, some of which are FERC-regulated.

The FERC-regulated business is subject to tariff risk. If any subsequent investigations find merit, the FERC may direct WMB to refund the revenues in excess of prior tariffs.

Out of WMB’s total tangible fixed assets, regulated natural gas transmission facilities assets accounted for ~40% in 2013.

Continue to Part 12

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