Williams Partners L.P. (WPZ) said it agreed to acquire Caiman Energy's wholly owned subsidiary, Caiman Eastern Midstream LLC, for about $2.5 billion, helping the company gain a foothold in the Marcellus Shale formation, a boom area for natural-gas production.
Williams Partners is the midstream and interstate gas pipeline asset-holder of energy company Williams Cos. (WMB). Caiman Energy is backed by private equity investors including EnCap Flatrock Midstream, EnCap Investments L.P. and Highstar Capital. Its midstream business is located in northern West Virginia, southwestern Pennsylvania and eastern Ohio.
Thanks to the acquisition, Williams said it would significantly accelerate its planned dividend increase, raising its expected payout this year to $1.20 from $1.09. The company also now expects to increase its dividend by 20% in both 2013 and 2014. Williams expects the acquisition to be strongly accretive to cash flow and per-share earnings in 2014 and beyond.
Williams Partners expects significant growth in gathering volumes and natural-gas liquids production from the assets. There is an estimated 300 trillion cubic feet of natural gas in place within a 35-mile radius of the existing gathering system there, and a significant amount remains undedicated, it said. Williams said it plans to make an additional investment in Williams Partners of approximately $1 billion to facilitate the Caiman deal.
Williams Partners said it also intends to participate in a new joint venture with Caiman Energy and its investors and management to develop midstream infrastructure in the NGL- and oil-rich areas of the Utica Shale, primarily in Ohio and northwest Pennsylvania.
Rising natural-gas production has heightened demand for pipelines that can move the fuel to market. Williams and other energy companies have been turning their focus to their core businesses in any effort to drive profits. In Williams's case that involves providing infrastructure to bring natural gas from growing North American energy fields to market.
Williams said last month it swung to a fourth-quarter loss, mostly on write-downs related to its former exploration and production business, while Williams Partners's fourth-quarter earnings improved on strong NGL margins.
Williams's shares were up 10 cents after hours at $30.52 and Williams Partners were up 0.6% to $61.42.
-By Ben Fox Rubin, Dow Jones Newswires; 212-416-3108; firstname.lastname@example.org