Williams will unload upstream assets it gained through producer bankruptcies

Williams Cos. Inc. President and CEO Alan Armstrong reassured investors and analysts that the gas pipeline giant does not plan to retain the upstream acreage it acquired as part of Chesapeake Energy Corp. and Southland Royalty Co. LLC's Chapter 11 bankruptcy exit strategies.

"We have no intention of hanging on to that. We're not going to become an E&P business," he said during the company's Feb. 23 fourth-quarter earnings conference call. "There are no ifs, ands or buts on that front, but this does allow us to put the right parties in place ... to take the cash flows off of these assets and put it back into the drill bit to drive midstream cash flow."

Williams agreed to slash its gathering fees in the Haynesville area in exchange for ownership of part of Chesapeake's South Mansfield producing assets, composed of about 50,000 net mineral acres. There has been an "incredible amount of interest" as the midstream firm looks for an upstream partner for those assets, Armstrong noted.

The U.S. Bankruptcy Court for the District of Delaware ruled in November 2020 that Southland's gas gathering agreement with Williams subsidiary Wamsutter LLC did not meet Wyoming state law's criteria for a real property covenant. Armstrong, however, said Williams was ultimately able to buy some Southland acreage "for some very attractive pricing."

"What is normally an area that might have been a problem for us with all these bankruptcies, we really were able to find a way to really turn some lemons into lemonade there," he added.

Williams also disclosed that it bought out EnCap Flatrock Midstream and Oaktree Capital Management LP's interests in the Caiman Energy II LLC joint venture that owns 50% of Blue Racer Midstream LLC for about $160 million.

"They had held on to that much longer than a typical private equity shop likes to," Armstrong said. "I can tell you we were super patient. We've been wanting to gain control of that asset."

Blue Racer caused tensions between Williams and EnCap Flatrock in 2019 when the Appalachian gas gathering and processing company contemplated an IPO. Williams said it wanted court guidance to prevent Blue Racer from encroaching on its midstream territory per a 2012 bylaw negotiated with other shareholders, while EnCap and its allies supported Blue Racer's listing plans as is. The Delaware Court of Chancery found EnCap could not move forward with a Blue Racer IPO.

First Reserve Corp. owns the other 50% stake in Blue Racer.

When it came to last week's freezing temperatures in Texas, Williams did not see an enormous financial windfall similar to what Energy Transfer LP experienced with its gas storage assets.

"The storage on Transcontinental Gas Pipe Line Co. LLC is at [Washington, La.,] which is kind of the middle part of the state by Opelousas ... so there really wasn't a whole lot of impact there. And obviously, Transco is designed to flow from that area to the North and East, not back into Texas," Armstrong said.

Williams on Feb. 22 reported adjusted fourth-quarter 2020 EBITDA of $1.34 billion, up 4% from $1.29 billion in the fourth quarter of 2019. The median of the S&P Capital IQ consensus estimate for fourth-quarter 2020 EBITDA was $1.28 billion.

Distributable cash flow for the quarter was $926 million, compared to $828 million in the same quarter a year ago.