Williams Partners (WPZ) to Acquire Caiman Eastern Midstream in $2.5B Deal

March 19, 2012 4:01 PM EDT
Williams Partners L.P. (NYSE: WPZ) today announced it has agreed to acquire Caiman Energy’s wholly owned subsidiary, Caiman Eastern Midstream LLC, for approximately $2.5 billion. The acquisition will provide Williams Partners with a significant footprint and growth potential in the natural gas liquids-rich portion of the Marcellus Shale.

Williams (NYSE: WMB) owns 72 percent of Williams Partners, including the general-partner interest. Caiman Energy is backed by private equity investors including EnCap Flatrock Midstream, EnCap Investments L.P. and Highstar Capital.

Caiman Eastern Midstream is an independent gathering and processing business located in northern West Virginia, southwestern Pennsylvania and eastern Ohio. Caiman’s existing physical assets include a gathering system, two processing facilities and a fractionator. Expansions to the gathering system, processing facilities and fractionator are currently under construction. An ethane pipeline is also planned.

The assets are anchored by long-term contracted commitments, including 236,000 dedicated gathering acres from 10 producers in West Virginia, Ohio and Pennsylvania.

Williams Partners expects significant growth in gathering volumes and NGL production from these assets. There is an estimated 300 trillion cubic feet (Tcfe) of natural gas in place within a 35-mile radius of the system, and a significant amount remains undedicated. The partnership expects the Caiman system to gather more than 2 billion cubic feet per day (Bcf/d) and produce approximately 300,000 barrels per day (bbl/d) of NGLs and condensate by 2020. It expects the acquisition to be accretive to projected distributable cash flow attributable to partnership operations per LP unit by 2013, with substantial projected growth thereafter.

Williams Partners plans to fund the purchase price of the acquisition with a combination of $1.78 billion in cash and the issuance to Caiman of approximately 11.8 million Williams Partners common units valued at approximately $720 million. The partnership expects to fund the cash portion of the transaction with a combination of equity, debt and available cash. Williams Partners has entered into a commitment with respect to a $1.78 billion interim liquidity facility with UBS Investment Bank which would be available to fund the full cash purchase price for the acquisition.

Williams intends to make an additional investment in Williams Partners of approximately $1 billion to facilitate the acquisition. Williams intends to purchase approximately 16.3 million Williams Partners limited-partner units at a price equal to the price of the units Williams Partners will issue to Caiman. Williams has also agreed to temporarily waive the general partner incentive distributions through 2013 with respect to the limited-partner units to be issued to Caiman and Williams. Williams estimates the foregone IDRs would have yielded approximately $26 million in 2012 and $42 million in 2013.

Williams Partners and Williams remain committed to retaining investment-grade credit metrics.

The acquisition is subject to customary regulatory filings and approvals. The partnership expects to complete the acquisition in the second quarter of 2012.

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