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Williams Partners L.P. (WPZ - Snapshot Report), a master limited partnership (MLP) of Williams Cos. (WMB - Analyst Report), agreed to buy a midstream unit − Caiman Eastern Midstream LLC − of Caiman Energy for $2.5 billion in cash and equity. The deal will significantly increase Williams Partners' footprint in the Marcellus Shale region.
The partnership intends to fund the potential acquisition with $1.78 billion in cash and the issuance to Caiman of about 11.8 million in its common units valued at about $720 million. The transaction will give Williams Partners access to 236,000 acres to collect oil from 10 producers in West Virginia, Ohio and Pennsylvania.
Caiman Eastern Midstream is an independent company engaged in midstream activities that include gathering and processing of liquid-rich gases from the prolific Marcellus Shale play, a key natural gas drilling area located throughout Western Pennsylvania and much of the Appalachian Basin. In particular, Caiman’s operations are located in northern West Virginia, southwestern Pennsylvania and eastern Ohio. Other assets of the unit comprise a gathering system, two processing facilities and a fractionator. The construction of extensions to the gathering system, processing units and a fractionator are currently underway.
Williams Partners’ latest acquisition − which is expected to be completed by the first half of the year − will entitle the partnership to collect more than 2 billion cubic feet of natural gas per day (Bcf/d) and produce about 300,000 barrels per day (bbl/d) of natural gas liquids by 2020 from the Caiman pipeline system.
Notably, taking into account potential contributions from the Caiman acquisition, Williams Partners has boosted its expectation for its regular cash distribution to limited-partner unit holders for 2013. It expects to deliver about 8% annual growth for 2012 and 8-10% for 2013 and 2014.
Of late, Williams Partners remains focused on widening its operations in the Marcellus Shale and is busy in building a supply hub in northeastern Pennsylvania that is expected to deliver more than 3 Bcf/d to interstate pipelines. The partnership also highlighted that it intends to join Caiman in developing processing facilities in the Utica Shale, in Ohio and northwestern Pennsylvania.
Williams Partners is an energy MLP engaged in gathering, transportation, treating and processing of natural gas as well as the fractionation and storage of natural gas liquids. We believe the partnership is well positioned for future growth owing to its geographically diverse assets, a sizable project backlog as well as a sound distribution history.
Moreover, its gas pipeline and midstream businesses continue to progress on a number of ongoing organic expansion projects, along with major growth projects in the Gulf of Mexico, Marcellus Shale and Piceance Basin.
The partnership, which competes with Kinder Morgan Energy Partners LP (KMP - Analyst Report), currently holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.