Williams Partners plans to acquire Caiman Energy's midstream company subsidiary for some $2.5 billion, expanding the Tulsa-based company's infrastructural footprint in the liquids-rich portions of the Marcellus Shale, it said.
Moreover, Williams Partners, in a statement, said it would enter into a joint venture with Dallas-based Caiman Energy itself and its investors, which include EnCap Flatrock Midstream, EnCap Investments and Highstar Capital, to develop midstream infrastructure in the liquids- and oil-rich areas of the Utica Shale, mainly in Ohio and northwest Pennsylvania.
The subsidiary, Caiman Eastern Midstream, has gathering and processing assets in northern West Virginia, southwestern Pennsylvania and eastern Ohio. More specifically, these are a gathering system, two processing facilities and a fractionator. Expansions to the gathering system, processing facilities and fractionator are currently under construction and an ethane pipeline is also planned, the statement said.
The assets are anchored by long-term contracted commitments, including 236,000 dedicated gathering acres from 10 producers in West Virginia, Ohio and Pennsylvania. In addition, there are processing commitments in place of 100,000 Mcf/d.
Williams expects significant growth in gathering volumes and NGL production from these assets with an estimated 300 trillion cubic feet (Tcfe) of gas in place within a 35-mile radius of the system, the statement said.
The partnership expects the Caiman system to gather more than 2 Bcf/d and produce about 300,000 b/d of NGL and condensate by 2020, the statement added.
"Our goal is to be the leading gathering, processing and transportation solution provider for producers in the Marcellus Shale," said Alan Armstrong, chief executive of Williams. "We're putting together the kind of infrastructure that makes drilling in the Marcellus even more desirable for producers because we provide large-scale infrastructure solutions that connect producers' natural gas and natural gas liquids to the best markets."
"We're very proud of the sizable rich gas system we've built in the Marcellus and the great relationships Caiman has developed with producers and the people of West Virginia," said Jack Lafield, president and CEO of Caiman Energy. "We're looking forward to working with Williams in the Utica Shale to bring midstream infrastructure to Ohio for producers working in this dynamic and rapidly evolving play."
In a recent interview with Platts, Lafield said Caiman was prepared to spend over $1 billion in the next two to three years to enhance its Utica footprint.
Caiman has already spent some $1 billion on processing and gathering facilities in the Marcellus, including two cryogenic plants in West Virginia that would bring the company's processing capabilities to around 1 Bcf/d by early 2013.
To serve the rich areas of both the Marcellus and Utica, the company is bring online its Moundsville processing plant and 12,500 b/d fractionator, in West Virginia across the river from Ohio, by the end of April, Lafield said. From Moundsville, supplies can be barged, trucked, railed or piped out to where they need to go, Lafield said.
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 about 11.8 million Williams Partners common units valued at around $720 million. The partnership expects to fund the cash portion of the transaction with a combination of equity, debt and available cash.
Williams intends to make an additional investment in Williams Partners of about $1 billion to facilitate the acquisition.
The acquisition is expected to close, subject to customary regulatory filings and approvals, in the second quarter of 2012.
As a result of the acquisition, Williams updated its 2012-13 guidance and gave a preview of 2014.
The Caiman subsidiary is expected to contribute some $40 million, $200 million and more than $400 million in adjusted segment profit plus depletion, depreciation and amortization in 2012, 2013 and 2014, respectively.
Capital expenditure guidance for 2012-13 is now expected at some $500 million in 2012 and $590 million in 2013, due to the acquisition. About $250 million in growth capital expenditures associated with the Caiman acquisition are planned for 2014.
