Vancouver Sun, Page C01, 23-Jul-2002

Williams may sell its B.C. assets

By Scott Simpson

Cash-strapped energy giant Williams is considering selling natural gas assets in British Columbia and Alberta in a desperate bid to reduce debt after slashing its stock dividend by 95 per cent and announcing a large second quarter loss on Monday.

The Oklahoma-based company, the No. 2 U.S. pipeline owner, said it is considering selling its natural gas processing and liquids extraction operations in northeast B.C. and Alberta "to continue to strengthen the company's financial flexibility."

The red ink stems from the bankruptcy of Williams Communications Group, termination of some pipeline projects, losses on power projects and a crash in the scandal-ridden trading and futures market.

chart from GLOBEinvestor.com

Terms of a potential sale are not known at this time -- but the company is scrambling to acquire cash and financing as its debt falls to junk bond status.

Williams stock plunged 61 per cent Monday on the New York Stock Exchange to a 20-year low, from $3.15 to $2.01 US.

Shares have fallen 94 per cent in the past year, largely due to fallout from the Enron energy trading scandal. Williams stock has a 52-week high of $34.41.

Acquired from TransCanada in October 2000, the Western Canadian assets represent a total of approximately six billion cubic feet per day of gas processing capacity, around 225,000 barrels per day of natural gas liquids

production capacity, a natural

gas liquids pipeline system and more than five million barrels of natural gas liquids storage capacity.

The assets include two natural gas processing and treatment plants in the vicinity of Fort St. John , and a liquids pipelines connecting B.C. and Alberta .

The assets for sale are outside of Williams' core pipeline business -- although the company has cancelled two U.S. pipeline projects.

Williams is B.C. Hydro's partner in a proposal now before the National Energy Board to build a gas pipeline across the Strait of Georgia to Vancouver Island .

B.C. Hydro spokesperson Elisha Odowichuk said Hydro still considers Williams to be its partner in the proposed pipeline.

"We're watching these developments fairly closely -- but at the end of the day we need gas to get to Vancouver Island and we are going to keep going forward with the project," Odowichuk said.

Williams' energy services unit president Phil Wright said the company has received an "unsolicited expressions of interest in these assets."

"In light of our balance sheet strengthening plan, we believe we must consider selling them to parties for whom they may be a better strategic fit," Wright said.

"While the growth prospects for the Western Canadian basin have proven even better than our original perspective two years ago, our midstream interests in the United States are more integrated and more complementary to other Williams assets."

Potential buyers could include Duke Energy, which bought B.C.'s Westcoast Energy for $8 billion US last year, and Calgary-based Enbridge Inc.

Enbridge is actively buying and selling assets to take advantage of rationalization by U.S. peers -- including a $50-million purchase last October of Williams' natural gas gathering, treating and transmission assets in south Texas.

Enbridge public affairs manager Jim Rennie said from Calgary that the corporation doesn't comment on specific rumours or inquiries about possible acquisitions.

"Having said that, Enbridge is always looking at opportunities to acquire assets that fit with our core businesses and our strategies for growth. And there are a lot of assets available at the moment.

"Our focus is on growth through acquisition in the U.S. , particularly in terms of crude oil and natural gas delivery systems. But we also continue to keep our eyes open for complementary acquisitions in Canada .

"If assets fit with our existing businesses and can add value, we will take a close look at them."

Williams blamed deteriorating energy market conditions -- and a loss of goodwill for its energy marketing and trading division in light of fallout from the Enron scandal -- for most of the recurring loss.

Williams executives did not rule out selling the once-profitable unit.

Williams had a per-share loss of as much as 73 cents, the company said in a statement.

Not included in recurring results is an estimated pre-tax charge of $210 million to $240 million.

Williams' board of directors approved a reduction of the third-quarter common stock dividend to one cent per share from 20 cents -- saving the company about $95 million this quarter.

"Reducing our common stock dividend is one of a series of prudent and realistic steps we have taken and are taking to address our current business environment," CEO Steve Malcolm said.

Williams is in talks to obtain bank financing secured by assets to replace $2.2 billion in loan agreements that expire today, company spokesman Jim Gipson said.

Moody's Investors Service and Standard & Poor's each lowered Williams' $16 billion debt to their lowest investment grade rating.

Rival traders Dynegy Inc. and Aquila Inc. have cut dividends, and some utilities with high dividend yields may follow, analysts said.

SELL-OFF

Williams Cos. is putting almost all its Western Canadian assets up for sale. The properties employ 240 people in Canada and include the following:

- A $395-million propylene plant near Redwater, opened in April.

- A gas extraction plant at Suncor Energy in Fort Saskatchewan -- a new unit that feeds the Redwater propylene plant.

- All or partial ownership in three natural gas liquids processing plants in Cochrane and Empress, Alberta .

- A 43-per-cent stake in the Younger natural gas plant in Taylor ,B.C., a major supplier of ethane for Dow Chemical and Nova Chemicals.

- A sour gas plant in West Stoddard , B.C.