Williams Partners Announces New Commitments Related to Barnett Shale and Mid-Continent Region
August 10 2016 - 5:19PM
Business Wire
- Williams Partners conditionally agrees
to execute a new Barnett gathering contract with a private company
and to terminate Barnett contract with Chesapeake
- Williams Partners agrees to revised
Mid-Continent Region contract with Chesapeake
- These Conditional Agreements Would
Diversify Williams Partners’ Customer Base, Reduce Expected
Revenues from Chesapeake to ~15% of Total Revenues, Reducing
Customer Concentration Risk and Supporting Additional Drilling and
Volumes in the Basins
- Williams Partners Expects to Receive
$820 Million in Upfront Cash Payments, Monetizing Contractual MVC
Commitments with Chesapeake; Establishing New Lower Rates;
Maintaining Expected Net Present Value of Barnett and Mid-Continent
Cash Flows
Williams Partners L.P. (NYSE: WPZ) today announced it has
conditionally committed to execute a new gas gathering agreement
with a new producer customer, a private company successor to
Chesapeake Energy (NYSE: CHK), in the Barnett Shale. Williams
Partners’ agreements with Chesapeake, including Chesapeake’s
Minimum Volume Commitment (MVC) obligations in the Barnett Shale,
will be terminated at closing. Among other conditions, the
commitment is subject to the closing of the sale of Chesapeake’s
Barnett assets to the producer customer, which is subject to
certain significant closing conditions including the receipt of
third-party consents. The new gas gathering agreement is expected
to be executed in the third quarter of 2016 when the Chesapeake
sale is expected to close.
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Additionally, Williams Partners and Chesapeake announced they
have agreed to a revised contract in the Mid-Continent region,
subject to the payment of $66 million by Chesapeake.
“These agreements will create a win-win commitment that results
in both short- and long-term benefits for Williams Partners,” said
Alan Armstrong, chief executive officer of Williams Partners’
general partner. “Chesapeake is a great customer and an efficient
operator; we look forward to a continued strong relationship as its
leadership team directs the company’s focus on its most productive
areas.”
Armstrong continued: “As a midstream service provider, we best
serve our shareholders and our upstream partners by supporting the
economics of key production areas. These conditional agreements
will help re-position the Barnett as a competitive basin for our
new Barnett producer customer as current drilling and completion
technologies are implemented.”
On a pro-forma basis, such agreements would reduce the
percentage of Williams Partners’ revenues derived from Chesapeake
to 15 percent as measured by the first half of 2016 revenues and
estimated MVCs. Additionally, such agreements, which will be
entered into by subsidiaries of Williams Partners, L.P. (NYSE:
WPZ), are expected to reduce customer concentration risk and result
in additional drilling and volumes in the basins. The $820 million
of up-front cash that will be paid to Williams Partners upon
execution of the agreements will be used to reduce revolver
borrowings. The cash proceeds will be treated as deferred revenue
for accounting purposes, with a majority to be amortized into
income over the 3 ½-year period beginning in 2016 through June 30,
2019, which coincides with the original MVC term.
Barnett Agreements
The conditional Barnett agreements provide accelerated upfront
cash payments to Williams Partners totaling $754 million, as well
as new terms and conditions under which Williams Partners will
provide gas gathering services to a new Barnett producer customer
(Chesapeake’s successor in the Barnett) through 2029.
Williams Partners expects the combination of $754 million in
up-front cash proceeds and the on-going cash flows generated by
gathering services provided to the new Barnett producer customer,
to represent equivalent net present value of cash flows as compared
to Williams Partners’ expectations of Chesapeake’s performance
under the existing agreement. Cumulative undiscounted cash flows
for the years 2016-2019 are expected to be approximately $240
million lower, and higher thereafter, as a result of the
conditional agreement.
By eliminating Chesapeake’s MVC payments and establishing
monthly gathering rates at a percentage of NYMEX Henry Hub
settlement prices through the end of 2029, the conditional gas
gathering agreement will bring drilling back to the Barnett Shale
and return wells determined to be uneconomic under earlier
gathering rates to production. The Barnett gathering area is
expected, therefore, to realize additional drilling and improved
volumes, enhancing Williams Partners’ long-term competitive
position. Importantly, the new Barnett producer customer will
commit to an annual $40 million drilling commitment through 2018,
as well as a commitment to fund all incremental well connects and
growth capital.
It is expected that Williams Partners’ existing gathering
agreement including MVC obligations with a third-party producer,
who has a 22 percent working interest in the Barnett production,
will remain unchanged through mid-2019 and then may be adjusted
thereafter.
Mid-Continent Region Agreement
The revised Mid-Continent agreement will provide an accelerated
up-front $66 million cash payment to Williams Partners from
Chesapeake and simplify several contractual requirements, allowing
both Chesapeake and Williams Partners to optimize their respective
operations and asset portfolio mixes.
Previous Renegotiations with Chesapeake
In September 2015, Williams Partners and Chesapeake announced an
expansion of gas gathering services for Chesapeake Energy in
growing dry gas production areas of the Utica Shale in eastern Ohio
and a consolidation of contracts in the Haynesville Shale in
northwestern Louisiana to optimize production opportunities,
streamline fee structures and restructure commitments to
incentivize long-term development of the fields. The companies also
announced a new contract for the Haynesville area. The news release
announcing the 2015 agreements can be found on our website.
About Williams Partners
Williams Partners (NYSE: WPZ) is an industry-leading, large-cap
natural gas infrastructure master limited partnership with a strong
growth outlook and major positions in key U.S. supply basins and
also in Canada. Williams Partners has operations across the natural
gas value chain from gathering, processing and interstate
transportation of natural gas and natural gas liquids to petchem
production of ethylene, propylene and other olefins. Williams
Partners owns and operates more than 33,000 miles of pipelines
system wide – including the nation’s largest volume and fastest
growing pipeline – providing natural gas for clean-power
generation, heating and industrial use. Williams Partners’
operations touch approximately 30 percent of U.S. natural gas.
Tulsa, Okla.-based Williams (NYSE: WMB), a premier provider of
large-scale North American natural gas infrastructure, owns 60
percent of Williams Partners, including all of the 2 percent
general-partner interest. www.williams.com
Portions of this document may constitute “forward-looking
statements” as defined by federal law. Although the partnership
believes any such statements are based on reasonable assumptions,
there is no assurance that actual outcomes will not be materially
different. Any such statements are made in reliance on the “safe
harbor” protections provided under the Private Securities Reform
Act of 1995. Additional information about issues that could lead to
material changes in performance is contained in the partnership’s
annual reports filed with the Securities and Exchange
Commission.
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version on businesswire.com: http://www.businesswire.com/news/home/20160810006185/en/
Williams Partners L.P.Media Contact:Keith Isbell,
918-573-7308orInvestor Contacts:John Porter,
918-573-0797orBrett Krieg, 918-573-4614
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