Williams Companies, Inc. (WMB), Williams Partners L.P. (WPZ): Betting on Hydrocarbon Infrastructure

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For investors looking to play the natural gas industry, some of the best companies are in the oil and gas transport industry. The Energy Information Administration expects U.S. liquid fuels consumption to increase by 0.1% in 2013, after falling 2.1% in 2012. Part of what will drive this is the expected rise in demand for natural gas liquids (NGLs).

There are a number of pipeline companies that operate as master limited partnerships (MLPs). For investors looking to avoid the additional burden come tax filing season (MLPs issue K-1s to investors for tax purposes), there are a few holding companies that operate as corporations and own oil and gas MLPs. These companies provide no extra burden to investors and are similar to owning other corporations, and generally pay a nice dividend. Three such companies are listed below.

Williams Companies, Inc. (NYSE:WMB) initially fell 5% after reporting first quarter earnings last week, but has since managed to claw its way back. The company reported first quarter EPS of $0.23, versus $0.70 for the same quarter last year, and compared to consensus of $0.24. What’s more is the energy transport company lowered its 2013 and 2014 earnings guidance primarily on natural gas prices. The company now expects EPS of $0.73 for fiscal 2013. Earlier, the company expected EPS to be in the range of $0.75 to $1.15 for fiscal 2013.

Williams Companies, Inc. (NYSE:WMB) is an energy infrastructure company that focuses on connecting North America’s hydrocarbon resource plays to markets for natural gas, natural gas liquids (NGLs), and olefins. Its operations span from the deepwater Gulf of Mexico to the Canadian oil sands, operating in three key segments:  Williams Partners L.P. (NYSE:WPZ), Midstream Canada & Olefins and Other. Williams Partners L.P. (NYSE:WPZ) focuses on natural gas transportation, gathering, processing and storage.

Williams Partners L.P. (NYSE:WPZ) contributed more than 90% of Williams Companies, Inc. (NYSE:WMB)’s total 2012 profit. Williams Partners L.P. (NYSE:WPZ) holds most of Williams Companies, Inc. (NYSE:WMB)’s interstate gas pipeline and midstream assets. Furthermore, Williams Partners L.P. (NYSE:WPZ)’spipelines transports 14% of the natural gas consumed in the U.S.

Williams Companies, Inc. (NYSE:WMB)’s midstream assets, which are less sensitive to commodity prices, help the company to maintain a steady stream of revenue and cash flow even if natural gas prices stay low. Furthermore, Williams is poised to benefit from the rebound in industrial activity, which will include increased natural gas demand in the form of natural gas liquids.

Following its capital-intensive WPX Energy spin-off, Williams is now a pure play midstream conglomerate. I think this is a big positive for the company, where the growth in energy infrastructure all across North America should be robust as the industry looks to support the growth of shale plays.

Kinder Morgan Inc (NYSE:KMI) is another way to play the natural gas industry. The company is one of the largest midstream energy companies in North America, operating approximately 73,000 miles of pipelines transmitting natural gas, refined petroleum products, crude oil, carbon dioxide and additional products.

The company owns the general partner (GP) interest and incentive distribution rights (IDRs) of Kinder Morgan Energy Partners, L.P. and El Paso Pipeline Partners, L.P. One of the biggest moves in the industry was the May 2012 acquisition of El Paso Corporation by Kinder Morgan Inc (NYSE:KMI), which created the largest natural gas pipeline system in North America.

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