TULSA — Williams Cos. Inc. surged up the Oklahoma Inc. list by spinning off its exploration and production business and choosing to focus on pipelines instead.
Before the spinoff of WPX Energy Inc., Williams was the country's No. 11 natural gas producer and one of the largest pipeline companies.
“We were not being valued for our reserves,” Williams CEO Alan Armstrong said. “Because most of our investors were interested in the cash and safety of the pipeline infrastructure, we had this big exploration and production company that wasn't being valued.”
Over the past two years, Williams spent about $2 billion investing in the Bakken and the Marcelles, two of the country's largest production areas. Despite the investment, the company's stock did not change much.
The company decided to focus on pipelines and gathering systems at a time when midstream assets are in high demand both because of increased oil and natural gas development throughout the country and because of increased demand from power plants, manufacturing sites and chemical plants.
“We're seeing a lot of long-term investments in the demand side. It's going to take a lot of natural gas and infrastructure to support that,” Armstrong said.
Spinning off WPX and focusing instead on midstream properties helped Williams' earnings per share to surge 167 percent from July 2011 through June 2012.
Williams' revenues improved 11 percent and its total return of stock and dividends gained almost 20 percent in the same time period.
The company's structural changes have drawn praise from Wall Street, said Tulsa money manager Jake Dollarhide.
“Midstream pipeline companies are in vogue. They are in line with what the market wants,” said Dollarhide, CEO of Longbow Asset Management Co. in Tulsa. “Many funds that invest in energy have replaced exploration and production companies with pipeline companies because
Williams has identified $25 billion worth of investment opportunities through 2017, he said.
The company already has pipeline and gathering system investments in many of the largest oil and natural gas production areas in the country, including the Bakken in North Dakota and the Marcellus in the Pennsylvania area.
The company announced in September that it has signed a long-term natural gas processing agreement with a producer in Canada's oil sands.
The focus on pipeline infrastructure also makes Williams less affected by volatile fuel prices.
“Today, we're more exposed to volume than price,” Armstrong said. “Whether gas prices go up or down, we don't really care as long as the volume moves. Almost all of the investments we're making today are investments away from price risk.”