Williams Partners Joins Caiman

Pipeline operator Williams Partners L.P. (WPZ - Snapshot Report) plans to develop midstream infrastructure with Caiman Energy II for oil and gas producers in the Utica Shale area of Ohio and northwest Pennsylvania.

Williams Partners will fund part of the $800 million joint venture to develop natural gas, natural gas liquid (NGL) and crude oil gathering and processing infrastructure. The other parties to the deal are Caiman, EnCap Flatrock Midstream of San Antonio and Highstar Capital of New York.

Williams Partners’ expected share of the total investment in the potential development is approximately $380 million over the next several years. The introduction of wide-ranging large-scale midstream infrastructure in the area along with Williams Partners' financial strength and expertise would create convincing midstream solutions for drilling locations in this play.

According to the state’s Department of Natural Resources, the Utica shale formation has a potential reserve of approximately 5.5 billion barrels of oil and 15.7 trillion cubic feet of natural gas.

This midstream infrastructure development will benefit from proximity to the partnership’s new Ohio Valley Midstream operations in northern West Virginia, southwestern Pennsylvania and eastern Ohio.

The partnership is expanding its existing gathering system and a processing facility in the region. Construction is also under way on fractionation and additional processing facilities. The partnership also plans to construct NGL pipelines.

Williams Partners is an energy master limited partnership engaged in gathering, transportation, treating and processing of natural gas as well as fractionation and storage of NGLs. The general partner of the partnership is owned and managed by Williams Companies Inc. (WMB - Analyst Report).

We believe William Partners is well positioned for future growth owing to its geographically diverse assets, a sizable project backlog as well as a sound distribution history.

In March, Williams Partners agreed to buy Caiman Energy’s midstream unit − Caiman Eastern Midstream LLC − for $2.5 billion in cash and equity. The deal will significantly increase Williams Partners' footprint in the Marcellus Shale region. The transaction 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. The partnership also highlighted that it intends to join Caiman in developing processing facilities in the Utica Shale, in Ohio and northwestern Pennsylvania.

The partnership currently holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.