Williams Trades Contentious Pipeline for Cash Payoff

Williams' (WMB - Cramer's Take - Stockpickr) plan to convert an asset with a contentious history into $100 million in much-needed cash stirred little reaction from dejected merchant energy investors Wednesday.

News of the sale -- which will rid Williams of its Kansas Hugoton gas gathering system -- failed to budge the stock, which has lost more than three-quarters of its value this year as investors have come to doubt the credibility of the entire energy-trading industry. Williams rose 33 cents, to $5.32 Wednesday. ¿

But at least one Houston analyst called the transaction a "wonderful sale" for Williams.

"This [asset] has been a bone of contention for 50 years," said John Olson, an analyst at Sanders Morris Harris with no financial stake in the company. "It's nice that they are able to sell it to somebody else.

"I'm delighted to see them get rid of it."

Royalty owners in the Kansas Hugoton region have long complained that they were cheated out of royalty payments because of a controversial contract between Williams Natural Gas and Amoco. Williams and Amoco have defended their practices. By shedding its Kansas Hugoton assets, Williams will distance itself from the swirl of litigation triggered by that dispute.

Tulsa money manager Fredric E. Russell applauded Williams' ability to hook a buyer outside the mainstream energy industry. FrontStreet Hugoton, an affiliate of FrontStreet Partners, has inked a deal to buy the asset. ¿

"FrontStreet Hugoton is not exactly a brand name in the energy business," said Russell, whose firm owns Williams stock. "But this letter of intent is a very promising development.

"It suggests that Williams' well-publicized plan to raise cash has stimulated significant interest way beyond the usual parties."

FrontStreet Partners describes itself as a Houston investment firm with a specialty in energy consulting.

Russell predicted the firm probably snagged the asset at an attractive price.

"Anyone who is buying assets in today's cash-restricted environment could properly be called a smart vulture," he said.

The Hugoton gas gathering system extends for seven counties in southwest Kansas. Recent improvements have hiked the system's gas production by more than 30 million cubic feet per day. Williams was expecting the system to deliver 270 million cubic feet of gas a day -- and an operating profit of $8.5 million to $9.5 million -- in 2002.

The asset sale is just the latest of several for Williams, which is seeking to strengthen its balance sheet by $8 billion. The company estimates that it's already made $5 billion worth of progress toward that goal.

Last month Williams announced plans to sell its profitable refineries in both Alaska and Memphis, as well as 29 convenience stores, for more than $1 billion. Companies throughout the industry are selling off pieces of themselves to pay down heavy debt loads, which have been considered unacceptable by ratings agencies since Enron's collapse last year into bankruptcy. ¿ ¿