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Williams announces strategic transactions

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World Pipelines,

Williams today announced two midstream transactions that will result in its entry into Colorado’s Denver-Julesburg (DJ) Basin and the exit of Williams Partners L.P. from the Four Corners Area in New Mexico and Colorado.

Williams and KKR & Co. today announced that they have entered into an agreement to purchase Discovery DJ Services (Discovery) from TPG Growth, the middle market and growth equity platform of alternative asset firm TPG, for US$1.173 billion, subject to customary closing conditions and purchase price adjustments. Discovery is a Dallas-based provider of natural gas and oil gathering and natural gas processing services in the southern portion of Colorado’s DJ Basin.

When the acquisition closes, which is expected to occur in early August, Williams and KKR will own the entirety of the Discovery midstream business through a joint venture. Williams’ initial economic contribution and ownership will be 40% of the purchase price while KKR’s initial economic contribution and ownership will be 60%. Under the terms of the agreed-to joint venture, Williams will be the operator of Discovery and will hold a majority of governance voting rights. Williams has committed to fund additional capital as required to bring its economic ownership to 50/50. Additionally, Williams at its option, may acquire a portion of KKR interests at predetermined, agreed-to terms until the sixth anniversary of close. Williams will use the equity method of accounting for this acquisition. Williams expects the Discovery transaction to represent a 5 - 6 times multiple to Williams’ investment inclusive of additional investments of approximately US$250 million between 2018 and 2020 and based on expected 2020 EBITDA forecast; with opportunities for additional improvement based upon the success of natural gas liquids (NGL) opportunities.

Discovery, whose management team is partnering with Williams and KKR to continue executing for the customers of the DJ Basin, provides midstream services to producers drilling the prolific Niobrara and Codell stacked-pay zones of the basin. Discovery’s infrastructure and related facilities are strategically located in Weld and Adams counties in Colorado. The Discovery system includes both natural gas and crude oil gathering pipelines, cryogenic gas processing, liquids handling and crude oil storage. The Discovery assets include 60 million ft3/d of gas processing capacity with an additional 200 million ft3/d plant that is fully permitted and under construction and is expected to be in service by the end of 2018. The Discovery assets also include 130 miles of natural gas pipeline and approximately 260 000 acres dedicated for gas gathering and processing plus an additional 60 000 acres for oil gathering.

“Adding the fast-growing Discovery midstream business, including sites with permitting underway for greater than 1 billion ft3/d of gas processing to our portfolio, follows our strategy of connecting the best supplies to the best markets. This is a great opportunity to expand our asset footprint into a premium-growth basin and brings the benefits of the Williams capability suite to better serve producers in the DJ Basin. The acquisition of Discovery is expected to unlock valuable synergies with our current operations and drive increased earnings,” said Alan Armstrong, President and Chief Executive Officer of Williams. “For example, this transaction allows Williams to take advantage of synergies between the Discovery assets and our downstream businesses via the DJ Lateral of Overland Pass Pipeline (OPPL). We will now have the opportunity to integrate output from these acquired assets with production from our existing processing footprint in the West segment into our advantaged downstream assets, including OPPL and the Conway fractionator and storage facilities.”

Concurrent with the announcement of the Discovery transaction, Williams is also announcing the combined sale of assets and equity comprising WPZ’s Four Corners Area (FCA) business in New Mexico and Colorado to Harvest Midstream Company (Harvest) for US$1.125 billion in cash, subject to customary closing conditions. The cash proceeds from the FCA transaction will contribute to funding Williams’ extensive portfolio of attractive growth capital and investment expenditures, including those opportunities associated with the Discovery acquisition. The FCA assets being divested of by Williams are located in San Juan and Rio Arriba Counties in New Mexico and in La Plata County in Colorado and include 3700 miles of pipeline, two gas processing plants, and one CO2 treating facility. In 2017, the Modified EBITDA contribution from the FCA assets was approximately US$85 million and is forecast to be US$82 million annualised in 2018. This transaction is expected to close in the second half of 2018, following the closing of the previously-announced merger of Williams Partners L.P. into Williams.

“The FCA transaction is a win-win opportunity for both Williams and Harvest,” said Micheal Dunn, Chief Operating Officer of Williams. The sale of the FCA assets supports Williams’ expansion of operations into the DJ Basin and funding of future growth capital. At the same time, we are pleased that an outstanding midstream services provider like Harvest will be the operator of these assets and know that the employees who move from Williams to Harvest will continue delivering gas gathering and processing expertise that is second to none in that basin.”

Armstrong added, “The Four Corners Area has been an important part of Williams dating back to the acquisition of Northwest Energy in 1983. However, pressure on natural gas pricing from adjacent basins like the Permian, demand a new basin model that consolidates and integrates upstream production with midstream operations in a way that optimises throughput and lowers cost. We believe that Harvest is ideally positioned to achieve this integration, and Williams can redeploy the proceeds into improved opportunities for growth. The value and multiple on EBITDA that we are receiving is a testament to the high-quality assets that Williams employees have grown and maintained in the basin over the past 35 years.”

For the Discovery acquisition, Simmons acted as the lead financial adviser to both Williams and KKR; Gibson Dunn served as legal counsel to Williams, and Simpson Thatcher served as legal adviser to KKR. For the transaction to divest of its assets in the Four Corners Area, Williams’ lead financial adviser was Morgan Stanley and Davis Polk acted as legal counsel.

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