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Morningstar | Asset Sales Have Improved Williams' Financial Health

Williams continues to simplify its story while executing on a robust pipeline of natural gas projects. Recent asset sales and the related growth capital reductions should allow Williams to reach its 4.2 times leverage target in 2023 by our estimates, and we already expect dividend growth to slow to 5% annually after 2019. Meanwhile, attractive Transco pipeline expansions and a full simplification transaction with William Partners (acquiring the remaining stake it did not own) have increased its leverage to natural gas, improved its financial position, and lowered its cost of capital. Williams is heavily leveraged to the fortunes of two major pipeline systems: Transco and Northwest, both of which have very healthy outlooks, in our view. We consider the Transco pipeline a wide-moat asset, positioned perfectly amid changing U.S. flows and healthy industrial demand for natural gas. The Transco is moving gas from the Northeast down to the Gulf Coast. It is benefiting from the surge in production from Marcellus/Utica on the supply side and demand drivers such as LNG exports, increased industrial demand for gas, and lowered levels of ethane rejection resulting from increased demand for ethylene as a feedstock. About two thirds of capital spending over the next few years will be directed toward incremental Transco expansions, which should eventually take Transco capacity to about 18 bcf/d in 2020 from 8.5 bcf/d in 2008. With more than 22 bcf/d in interconnects (Transco pipeline capacity paid for by others) nearly completed, the pipeline could capture more than 50% of incremental gas demand in the Northeast over the next few years, which is about three quarters of the expected increase in overall U.S. gas demand (including LNG exports) over the same time frame. The Northwest pipeline is the more mature system of the two, but retains a similarly dominant position in the U.S. Northwest. With returns secured by utilities demand, and decent basin economics from the Greater Green River, San Juan, and Western Canadian Sedimentary Basin, the pipeline looks to deliver secure returns while offering small investment opportunities such as Northwestern LNG exports.