Wednesday, August 31, 2011
Tulsa World, Okla.
by Rod Walton
Falling natural gas prices can benefit the country and smart companies if they're willing to take advantage by getting bigger, Williams Cos. Inc. CEO and Chairman Alan Armstrong said Tuesday.
"Production companies are going to have to operate on a large scale," Armstrong said during the inaugural lecture of this academic year's Friends of Finance series on the University of Tulsa campus. "You better be a big player."
Williams knows something about size within the industry -- 14 percent of daily U.S. natural gas consumption moves on the company's interstate pipelines, while Williams' exploration and production side produces 1.2 billion cubic feet per day, according to the most recent data.
More efficient drilling techniques and shale gas discoveries have driven down natural gas prices from an average $7.91 per thousand cubic feet midway through the last decade to $4.37 in the past year. Crude oil now trades at 3.5 times the price of natural gas on an energy-equivalent basis.
And that's not such a bad thing, Armstrong told a capacity audience in the Great Hall of the Allen Chapman Activity Center. Cheaper natural gas pushes up demand, including the fuel's use as a petrochemical feedstock that is more cost-effective than plastic and petchem products made abroad.
In fact, the U.S. now enjoys a $16.4 billion trade surplus in basic chemical and plastics products, Armstrong said. Power generation companies also are replacing coal-fired units with gas-fired operations.
"We really do embrace the concept of low natural gas prices," Armstrong said. "We feel that growth is coming."
Change is certainly almost routine at Williams since Armstrong took over for Steve Malcolm in January. The Tulsa-based company announced the partial IPO and eventual spinoff of its exploration and production side into WPX Energy Inc., and it's also pursuing Houston-based pipeline and utility supplier Southern Union Co. for a possible merger.
Armstrong would not detail the offer for Southern Union since Williams is still in a bidding war with Energy Transfer Equity LP. But he did note that Southern Union's pipeline network and gas utility connections are attractive as power generation shifts toward natural gas.
"We really do believe that power generation markets will continue to expand," Armstrong said.
Energy Transfer Equity currently holds the higher offer at $44.25 per share in stock and cash. Williams, however, has argued that its all-cash bid, at $44 per share, is a better value for Southern Union because of stock market volatility.
The WPX Energy spinoff and IPO offers more immediate benefits locally. Few investors view Williams as a producer despite its top-10 domestic status, so WPX will give a strong, focused option to long-term investors who are not interested in the quarterly distributions promised by fee-based master limited partnerships.
"There really is a revolution going on before us," Armstrong said of the production and processing opportunities awaiting growth-oriented natural gas players.
Williams still would own 80 percent of WPX after the partial IPO, using the maximum $750 million in equity raised to pay down debt and shore up the company's investment-grade status. Williams shareholders would receive the remaining stake in a tax-free spinoff next year.
The final result would be that two of the nation's largest independent pure-play energy companies would both based in Tulsa.
Williams currently employs about 1,300 people in the city. The companywide workforce, including operations in offshore drilling and Canadian off-gas processing and olefins production, stands at about 5,000. Williams Cos. Inc. by the numbers
- 103 years old
- 1,300 employees in Tulsa; 5,000 companywide
- 14 percent of U.S. natural gas consumption moves on its pipelines
- 1.2 billion cubic feet in natural gas produced per day
Copyright (c) 2011 Tulsa World (Tulsa, Okla.)
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