The Williams Cos. warned Tuesday in its annual report with the Securities and Exchange Commission (SEC) that limited access to capital due to its non-investment-grade credit status and insufficient cash flow from operations to pay debt obligations make it imperative that the company sell its previously announced $2.25 billion in additional assets this year.

“If the realized cash proceeds are insufficient or are materially delayed, we might not have sufficient funds on hand to pay maturing indebtedness or to implement our strategy,” company officials said.

In addition to the sale of its ethanol business, which was announced late last month for $75 million, Williams also has put Texas Gas Transmission on the auction block along with its stake in Williams Energy Partners and 20% of the gas reserves in its exploration and production unit. Analysts broke down the asset values like this: Texas Gas at $1.1 billion, the WEG shares at about $700 million and the 20% stake in Williams’ E&P unit reserves at another $700 million.

As of Dec. 31, 2002, Williams had debt obligations of $3.8 billion (including certain contractual fees and deferred interest related to underlying debt) that will mature between now and March 2004. Proceeds from asset sales are necessary to meet those maturing obligations, the company said. With additional asset sales and financings, it expects to have cash of $2.8 billion at year-end 2003 and $1.6 billion at year-end 2004. It also expects year-end debt to be $11 billion in 2003 and $9.5 billion in 2004. However, those financial improvements are contingent on successfully completing the sales.

“Our secured credit facilities limit our ability to sell certain assets and require generally that one-half of all net proceeds from asset sales be applied (a) to repayment of certain long-term debt, (b) to cash collateralization of designated letters of credit, and (c) to reduction of the lender commitments under the secured facilities,” Williams said in its 10-K. “The timing of and the net cash proceeds realized from such sales are dependent on locating and successfully negotiating sales with prospective buyers, regulatory approvals, industry conditions, and lender consents.”

Williams also said in the filing that it has received and is responding to subpoenas and information requests from the U.S. Attorney’s Office in Houston relating to a Houston grand jury inquiry. The subpoenas and inquiries concern gas and power trading activities already under investigation by the SEC. The company also is under a grand jury investigation regarding commodity pricing information provided to publications.

Earlier this week, the company’s Transcontinental Gas PipeLine subsidiary agreed to pay a civil penalty of $20 million to the Federal Energy Regulatory Commission over the next four years, beginning with a $4 million payment as early as mid-May for violating laws and agency regulations that prohibit interstate natural gas pipelines from giving preferential treatment to marketing affiliates and other sister companies (see Daily GPI, March 18).

The impact on Williams’ financial results is an additional $8 million charge to fourth-quarter 2002 segment profit for its gas pipeline business. The settlement also calls for the company’s Transco pipeline to discontinue firm sales services by April 1, 2005, and places additional restrictions on the Williams energy marketing and trading unit’s ability to transport gas on affiliated pipelines.

Williams said it will continue to have the capability to transport gas through its affiliated pipelines to meet the needs of its exploration and production, midstream and power businesses. Since the company is continuing to pursue a strategy to substantially exit the energy marketing and trading business through sales or joint venture, it said that it does not expect these new requirements from the FERC to have a significant impact on the company’s future business.

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