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Williams Cos. posts another big loss on energy trading problems Company continues its painful transition; sale of Alaska refinery, stores, interest in trans-Alaska pipeline not likely to close in 2002 Allen Baker PNA Contributing Writer
Williams Cos. Inc. continued to flow major amounts of red ink in the third quarter, posting a loss of $294 million as energy trading problems continued. The company had a profit of $221 million a year ago, but it posted a loss of $349 million in the second quarter of this year, again on big losses in its energy trading unit.
The results of the Tulsa, Okla., company are hard to sort out because the numbers include operation of ongoing and for-sale businesses, asset sales, and revaluation of various assets.
Asset sales Williams has been selling off chunks of the business to reduce debt and appease its lenders since the Enron debacle and the bankruptcy of former subsidiary Williams Communications.
With Williams’ debt downgraded to junk status, the energy trading unit has been unable to originate new business or hedge its portfolio. The unit not only had an operating loss for the quarter of $388 million, it actually recorded negative revenues to the tune of $290 million. Energy marketing and trading provided operating profits of $357 million on revenues of $493 million a year ago.
Four core areas Executives say the company is moving in a new direction, concentrating on four core areas: gas pipelines; exploration and production; midstream gas and liquids; and the investment in Williams Energy Partners, where Williams serves as the general partner.
In the gas pipeline segment, operating profits were up 70 percent to $173 million in the quarter due to expansions and new rates approved by regulators.
Operating profits for the exploration and production segment were $232 million for the quarter as the company booked sales of gas properties in the Jonah field and the Anadarko Basin. Production volumes also increased substantially because the acquisition of Barrett Resources occurred during the third quarter of 2001 and wasn’t included for the full period then.
Midstream gas and liquids had operating profits of $104 million, up from a restated $70 million a year ago. Growth in the deepwater Gulf of Mexico, as well as increased margins, helped that business.
Williams Energy Partners brought $13 million to Williams, down from $27 million a year ago, due to increased environmental expense accruals. That entity is taking over some of the major pipelines Williams is selling.
For those four operations, Williams says it is expecting recurring operating profits of $1.1 billion to $1.3 billion next year.
Interest costs soar But all that could be gobbled up if the company’s interest costs aren’t brought down significantly. Accrued interest in the third quarter of this year ballooned to $359 million from $167 million a year earlier, despite the asset sales in the meantime.
Williams says the increase comes from $53 million related to a $900 million loan it negotiated last July when the company was facing defaults, $45 million due to higher interest rates since the company’s credit rating declined, and $66 million due to higher borrowing levels. Then there’s $27 million in higher debt amortization expense.
On top of that, interest rate swaps resulted in $52 million in losses that were booked in the third quarter.
If interest expense continues at that rate, it could essentially swallow all the cash flow from the four core businesses.
Debt-equity ratio rises As of Sept. 30, Williams had a long-term debt to debt-plus-equity ration of 69.6 percent, compared with 59 percent on Dec. 31, excluding debt on several pipeline systems that have since been sold.
Williams has scheduled debt retirements of about $4.1 billion from now through the first quarter of 2004, and expects to continue selling assets to remain liquid over that period.
According to a recent filing with the Securities and Exchange Commission, Williams believes asset sales of about $780 million expected in the fourth quarter will allow it to meet cash requirements and satisfy lending covenants for the rest of the year.
Williams’ Alaska assets may not sell in 2002 That probably doesn’t include the sale of the company’s Alaska assets, which Williams put on the block earlier this year along with its Memphis refinery and other assets in its petroleum services segment.
Williams says it has definitive agreements for $550 million of the $780 million in asset sales expected to close this quarter, leaving just $230 million to go. The Alaska operations are likely to bring something in the neighborhood of half a billion dollars. It would be tough to close such a big sale in just six weeks anyway.
Interestingly, Williams wrote down its Memphis refinery by $176 million in the quarter, and posted an impairment of $112 million for the travel centers business it is selling for $190 million. Williams also wrote down its bio-energy operations, another part of petroleum services, by $144 million.
But it didn’t change the value of the Alaska assets, which include the big North Pole refinery, Alaska convenience stores, and a small share of the trans-Alaska oil pipeline.
Editor’s note: Williams was one of nine North American pipeline and utility heavyweights that signed a Memorandum of Understanding on Nov. 15, 2001, to develop a plan for carrying Alaska gas to Lower 48 markets. The withdrawal of Duke Energy less than a year later effectively neutered the agreement.
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