Eager to avoid the stock free fall suffered by El Paso on Wednesday following its announcement that it would lay off half of its trading staff and limit spending on the business, Williams released a statement confirming its commitment to energy trading and risk management despite its plan to find a partner to buy 50% of its operation. Williams CEO Steve Malcolm also said his company is a more conservative energy marketer than the rest of the pack, with an asset-based approach, a focus on term business and no interest in inflating volumes.

“Williams firmly believes it is possible for the company to operate a robust energy marketing and risk management business and maintain a strong investment-grade rating, and on Tuesday I announced a number of steps that would allow just that,” said Malcolm. “Among those steps is the formation of an internal team comprised of some of the brightest minds in the industry, dedicated to resolving for Williams lingering uncertainty surrounding the creditworthiness of energy marketing and risk management.”

Faced with mounting concerns from investors and credit-rating agencies, Williams announced a $3 billion-plus plan on Tuesday to improve its flailing balance sheet over the next 12 months. The package calls for Williams to issue $1-1.5 billion in common equity; sell an additional $1.5-3 billion in non-core assets; reduce annual costs by $100 million, or double its previous goal; fund base-level capital expenditures with cash flow from operations, and fund additional growth opportunities with a mix of follow-on equity and debt; and use all net proceeds from sales of assets and initial equity to pay down debt or increase liquidity.

So far this year, Williams has sold $1.1 billion in publicly traded equity-linked securities, completed transactions covering $1.7 billion in assets, issued $1.5 billion in bonds and reduced planned capital spending by nearly $2 billion. The company also has eliminated nearly all of the so-called “triggers” from its major on- and off-balance sheet financial structures, including the resolution of more than $2 billion in liabilities related to its former telecommunications subsidiary. The remaining triggers have a maximum exposure of less than $190 million and will mature next year.

In addition, Williams has formed an internal team within its energy marketing and trading business to evaluate potential “joint venture” or other alternative solutions to boost the financial outlook of that unit. William Hobbs, president of Williams Energy Marketing and Trading, said last week that the company was in “early discussions with various parties” (see Daily GPI, May 23).

Although Williams already has admitted doing wash trades, in which a given amount of gas or power is sold and then repurchased at the same price for the purpose of inflating volumes or revenues, the company said its wash trades produced no increase in revenues because it reports revenues on a net rather than a gross basis.

Malcolm said Williams takes a different approach to many aspects of the trading business and shouldn’t be tossed in the barrel with all of the other bad apples. It is more focused on risk management and trading around its assets rather than on maintaining an active speculative trading book. He said Williams also has a different trading philosophy than most other energy merchants. In contrast to many other trading companies, Williams employs a conservative model in its risk assessment, preferring to lock in long-term structured transactions over one, 10 or even 20 years, rather than trying to live on day-to-day margins.

Its business is not driven by volume either. “Just look at the rankings,” Malcolm said. “We have a different business model that is dependent on long-term arrangements rather than daily trading volume.”

In addition, the limited amount of trading Williams does is a direct result of interaction with customers, based on the need to meet requirements of long-term contracts.

“The market, the media and the world need to know that it is entirely possible to run an honest, profitable energy marketing and risk management business, using a dose of prudence and legitimate accounting procedures,” Malcolm said.

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