RE: Kern River deal

see what happens when you leave the gas bidness homey? Williams was in some pretty dire financial straights ala Enron and debt they had with their communications group. They apparently realized this last fall and started to panic. Buffet boys come in and pick off one of the crown jewels at a pretty sweet price (including the KRGT expansion). The sale not only helps WPL's current finances but eliminates the need to spend $1.2bn on the expansion. What's interesting is the preferred shares also established in the deal. Warren could end up owning a big chunk of WPL when it's over.

kh

-----Original Message-----
From: Fawcett, Jeffery [mailto:JFawcett@Sempra.com]
Sent: Friday, March 08, 2002 3:12 PM
To: Lindberg, Lorraine; 'sslindberg@duke-energy.com'; 'skatz@sempratrading.com'; Huckabee, Phyllis; 'jdasovich@ubswenergy.com'; Hyatt, Kevin; 'mbaldwin@igservices.com'
Subject: Kern River deal

Wow ... this is huge!

I've met with executives of Mid-American Energy in the context of doing my Fiber Links business and I didn't come away too terribly impressed. It's undeniable that Warren Buffet and his chief lieutenant, David Sokol, both have a reputation for finding ways to make money, but this deal seems almost inexplicable when searching for a unique competency of Mid-American that would lead to increased earnings for Kern River. Any other scuttlebutt about this deal out there in the gas world?

Jeff

p.s. While at Mojave, Rob Foss and I both worked with Bob Sluder when he was just a gas control/operations puke like the rest of us. He's apparently done quite well at KRGT.

Williams to sell Kern River for nearly $1B
Beleaguered gas marketer and pipeline operator Williams said Thursday it has agreed
to sell its Kern River Gas Transmission pipeline to MidAmerican Energy Holdings
for nearly $1 billion.
MidAmerican, a unit of investor Warren Buffet's Berkshire Hathaway, will pay
Williams $450 million in cash and assume $510 million of Williams' debt in order to
acquire Kern River. The deal, part of Williams' ongoing effort to strengthen its balance
sheet, is set to close by March 31 assuming regulatory approvals. Williams said selling
the Kern River system will save the company about $1.26 billion in capital expenses
over the next 18 months.
MidAmerican, meanwhile, said it will proceed with a major expansion of the pipeline,
which currently has a capacity of 835,000 Mcf/day and extends 926 miles from Opal,
Wyo., to California's San Joaquin Valley. Built in 1992, it is a key route for shipping Rocky
Mountain gas to markets in the western United States, particularly Southern California.
The expansion project, due to be completed in May 2003, will more than double
the pipeline's capacity to 1.7 Bcf/day, according to a filing Williams submitted to
FERC in August. The value of the pipeline once it is expanded will exceed $2 billion,
MidAmerican said in a release.
"We are extremely pleased to be acquiring the Kern River Gas Transmission, which
we view as one of the finest natural gas pipeline assets in North America," said David
Sokol, MidAmerican's chairman and CEO. Upon completion of the sale, Kern River will
become a subsidiary of MidAmerican. Bob Sluder, senior vice president and general man-ager
of Williams' Kern River and Northwest systems, will become president of the new
MidAmerican subsidiary.
As for Williams, "We are taking this decisive step to strengthen our balance sheet to
meet the more conservative requirements of the rating agencies, which now require com-panies
like Williams to reduce debt and increase cash flow to maintain an investment-grade
credit rating," President and CEO Steve Malcolm said. "The sale of our Kern River sys-tem
is an important building block in achieving the financial flexibility to expand our busi-nesses
now and in the future."
Williams has been under pressure from investors and rating agencies since the Tulsa-based
company delayed the release of its 2001 earnings to iron out debt issues related to
the troubled Williams Communications Group subsidiary, which it spun off last year. Ear-lier
this week, Williams said it had reached a deal with investors to refinance $1.4 billion
of WGC-related debt (GD 3/5).
Williams' stock price has taken a beating due to the WGC debt issues as well as the
heightened scrutiny of U.S. energy merchant companies in the wake of Enron's bankrupt-cy
in December (GD 12/4).
In releasing its earnings Thursday, Williams reported a 2001 net loss of $477.7 mil-lion,
or 95?/share, compared with net earnings of $524.3 million or $1.17/share in 2000.
The 2001 loss includes pre-tax charges of $2.05 billion relating to WGC.
WGC said income from continuing operations for 2001 was $835.4 million, compared
with $965.4 million a year earlier. The total WCG-related charges of $2.05 billion repre-sents
80% of the total WCG-related guarantees and payment obligations, and the deferred
payment for services provided to WCG, Williams said.
Also Thursday, Williams said it will raise $275 million through the sale of 9.875% cumu-lative
convertible preferred stock to MEHC Investment, a subsidiary of MidAmerican Energy
Holdings. MEHC will acquire 1.46 million shares of the security at a price of $187.50/share,
with each share of the security convertible into 10 shares of Williams' stock. The deal is expect-ed
to close by March 31 and goes hand in hand with the Kern River transaction.
MidAmerican, headquartered in Des Moines, Iowa, is a privately owned energy
provider with 10,000 employees. It provides gas and power to approximately 5 million
customers.

Jeffery C. Fawcett
Vice President
Sempra Fiber Links
440 Louisiana Street
Suite 900
Houston, TX 77002
Houston Office: 713-236-7720
Houston Fax: 713-236-7721
San Diego Office: 619-696-4673
email: jfawcett@sempra.com
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