Williams, BWP Form Joint Venture

Zacks

North American energy firm Williams Companies Inc. (WMB) inked a deal with a master limited partnership Boardwalk Pipeline Partners LP (BWP) to form a joint venture for developing a pipeline project. The pipeline will carry natural gas liquids (NGL) to the growing petrochemical complex on the Gulf Coast from Utica and Marcellus shale plays situated in Ohio, West Virginia and Pennsylvania.

The planned Bluegrass Pipeline system will carry the NGL at a rate of 200,000 barrels a day from the producing regions of Ohio, West Virginia and Pennsylvania to the Texas Gas Transmission system of Boardwalk, based in Hardinsburg, Kentucky. From Kentucky the liquid will be transported to the coast of Texas and Louisiana, where it will be used as feedstock for the petrochemical plants, for fractionation purposes and the export market. In addition, the companies are looking to construct a processing plant in Louisiana.

Included in the deal, the companies are also planning to build a new liquefied petroleum gas terminal on the Gulf Coast to better access international customers.

The proposed pipeline is expected to be in operation in the second half of 2015, subject to the fulfillment of all the required conditions. In order to support the growing market demand, the capacity of the pipeline is also expected to be increased to 400,000 barrels a day from 200,000 barrels a day by adding an extra pumping system.

However, the cost of the project is not yet disclosed by any of the companies.

Tulsa, Oklahoma-based Williams is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing, and transportation of natural gas. Boasting of a widespread pipeline system, Williams is one of the largest domestic transporters of natural gas by volume. Its facilities – gas wells, pipelines, and midstream services – are concentrated in the Northwest, Rocky Mountains, Gulf Coast, and Eastern Seaboard. Williams divides its business into four segments: Williams Partners, Williams NGL & Petchem Services, Access Midstream Partners, and Other.

We remain concerned about Williams’ high debt levels, which leave it vulnerable to an extended drop in commodity prices. As of Dec 31, 2012, Williams had long-term debt of more than $10.7 billion, representing a debt-to-capitalization ratio of 69.3%.

Williams currently retains a Zacks Rank #5 (Strong Sell), implying that it is expected to underperform the broader U.S. equity market over the next 1 to 3 months.

However, there are other stocks in the oil and gas sector – Calumet Specialty Products Partners LP (CLMT) and Compressco Partners LP (GSJK) – which hold a Zacks Rank #1 and are expected to perform better.

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