Energy Transfer Lost $1.8 Billion in Williams Deal Earnings

(Bloomberg) -- Six months ago, Energy Transfer Equity LP said buying Williams Cos. may boost its earnings by $2 billion a year. On Wednesday, the pipeline operator lowered its estimate to something it described as “materially less” -- $170 million.

In tempering expectations by 92 percent, the two midstream giants said in a filing that they were “taking into account facts and circumstances occurring since” they first agreed to the takeover on Sept. 28 -- circumstances being the fact that oil prices have plunged by $5 a barrel and natural gas is down 30 percent since that day.

The revision is yet another bump in what’s proven to be a rocky road to closing the deal between the two companies. Energy Transfer offered $43.50 apiece for Williams shares in September. The market value of both companies has fallen more than 50 percent since then, crushed by the weight of crude’s collapse and casting doubt on whether the takeover will actually happen.

Under their base case, the companies’ new estimates for benefits by 2020 -- realized from “synergies” related to more efficient operations and performance -- involve U.S. benchmark West Texas Intermediate oil prices ranging from $32.92 per barrel this year to $44.31 in 2020. They also assume Henry Hub natural gas prices ranging from $2.34 per billion cubic feet this year to $3.11 in 2020. In another case, the synergies could reach $590 million a year if oil and gas prices tick higher.

That’s a "massive reduction" in expected synergies that comes as a "huge surprise," Timm Schneider, an analyst at Evercore ISI, said in a note to clients.

Closing Offices

In the filing, Energy Transfer also said that it plans to consolidate corporate offices in its hometown of Dallas, thereby "significantly" reducing the presence of Williams in Tulsa and Oklahoma City. Jobs in finance, accounting, engineering, construction, legal, human services and information technology will be especially reduced, or even eliminated, it said, drawing an angry rebuke from Tulsa Mayor Dewey Bartlett.

Williams has been “incredibly generous and proactive" in making Tulsa a relevant place to live and the potential job cuts resulting from the deal are "totally unacceptable," Bartlett said in a phone interview.

Energy Transfer was down 33 cents, or 4.7 percent, to $6.82 at 2:10 p.m. in New York trading on Thursday. Williams fell $1.01, or 6.2 percent, to $15.25.

Energy Transfer spokeswoman Vicki Granado declined to comment beyond the filing. Williams said by e-mail that it’s still committed to completing the deal agreed to in September.

The company “believes the transaction with ETE is in the best interests of stockholders and intends to consummate the transaction following receipt of stockholder approval,” Williams said.

To contact the reporters on this story: Tim Loh in New York at ;Joshua Fineman in New York at To contact the editors responsible for this story: Lynn Doan at Stephen Cunningham, Charlotte Porter.


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