Williams Companies (WMB - Analyst Report) announced that it will receive a total payment of $312 million from Venezuela's state-run oil company – Petroleos de Venezuela SA or PDVSA – for the assets of the joint ventures – WilPro Energy Services (El Furrial) Limited and WilPro Energy Services (PIGAP II) Limited.
Under the industry nationalization program that began in 2007, PDVSA had seized the gas compression and treatment properties in 2009.
An initial payment of $84 million in cash was made to Williams along with an additional $63 million for the stake in Accroven SRL that included two natural gas liquid (NGL) extraction plants, an NGL fractionation unit plus storage and refrigeration facilities. Williams will receive the remaining $165 million as periodic cash payments through the first quarter of 2016.
In March 2011, Williams filed for arbitration on the PDVSA seizures with the International Centre for Settlement of Investment Disputes, formed by the World Bank Group. The company has agreed to suspend the proceeding of the arbitration, pending full payment by PDVSA.
Williams, through one of its subsidiary, enjoyed a respective 66.66% and 70% ownership interest in El Furrial and PIGAP II ventures. Houston, Texas based energy firm Exterran Holdings Inc. (EXH - Snapshot Report) partnered Williams in the aforesaid joint ventures.
Tulsa, Oklahoma-based Williams is a premier energy infrastructure provider in North America. We maintain a long-term Neutral recommendation on the stock that is supported by a Zacks #3 Rank (short-term Hold rating).
Boasting of a widespread pipeline system, Williams is one of the largest domestic transporters of natural gas by volume. Its facilities – gas wells, pipelines, and midstream services – are well spread across in the Northwest, Rocky Mountains, Gulf Coast, and Eastern Seaboard.
We believe that the company will be able to generate highly visible cash flow and dividend growth over the next several years through strong operational performances by its business units.
However, we remain worried about low natural gas prices, which are likely to restrict near-term growth prospects at Williams. We also remain concerned about the company’s high debt levels, which make it vulnerable to an extended drop in commodity prices. As of December 31, 2011, Williams had a debt of $8.7 billion, representing a debt-to-capitalization ratio of 82.9%.