Williams (NYSE:WMB) announced that it will separate its exploration and production business from the rest of the company through an initial public offering in late 2011. The oil exploration and production company plans to spin off the balance of this business to shareholders.

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Separation Plan
Williams plans to sell off just under a 20% interest in the exploration and production business through an initial public offering in the third quarter of 2011. Sometime in 2012, the rest of the business will be spun out to existing shareholders. The company will use the IPO proceeds to reduce debt. Williams is engaging in the reorganization because it believes that this plan will allow management to increase its focus, which will ultimately lead to increased shareholder value.

What's Left?
After the entire two-step separation is complete, William will be left with its midstream business and pipeline assets, most of which are owned by Williams Partners L.P. (NYSE:WPZ). Williams will continue to own its 73% limited partnership interest in this entity. Many of these midstream assets are in proximity to fast growing oil and gas basins in the United States, including the Marcellus and Eagle Ford Shale. Williams also has three separate interstate natural gas pipelines, totaling nearly 15,000 miles in length. The company has $1.8 billion in growth projects planned in this business.

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Exploration and Production
The exploration and production business of Williams is large and diversified. The company reported proven reserves of 4.5 tcfe at the end of 2010, with 94% of the reserves composed of natural gas. This may make some shareholders unhappy, as natural gas is currently not in fashion among investors.

The level of proven reserves makes Williams a fairly large company in the sector, bigger than Newfield Exploration (NYSE:NFX), which reported proven reserves of 3.7 Tcfe at the end of 2010, and Petrohawk Energy (NYSE:HK), with proven reserves of 3.4 Tcfe.

Williams has acreage in older producing basins in the Rocky Mountains, as well as newer areas including the Barnett, Marcellus and Bakken formations. Williams recently paid approximately $925 million to get 85,800 net acres in North Dakota that is prospective for the Bakken formation. (For additional stock analysis, see The Alberta Bakken.)

Dividends
Williams also announced a large increase in the dividend for the first quarter of 2011, moving it up 60%. The company plans another 10-15% increase in the middle of 2012.


The Bottom Line
In the early 1960s Neil Sedaka recorded the hit song "Breaking Up Is Hard To Do." This statement apparently does not apply to the energy sector, where many companies are currently engaged in a frenzy of spinoffs. Williams is the latest company to move in this direction, and has plans for a partial separation of its exploration and production business through an initial public offering in 2011, and a final spin out in 2012. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!