Williams (NYSE: WMB) has announced its midstream entry into Colorado’s DJ Basin and the exit of Williams Partners L.P. (NYSE: WPZ) from the Four Corners Area in New Mexico and Colorado.
Into the DJ
Williams and KKR & Co. (NYSE: KKR) have entered into an agreement to jointly purchase Discovery DJ Services from TPG Growth for $1.173 billion. Discovery is a Dallas based provider of natural gas and oil gathering as well as natural gas processing services in the southern part of the DJ Basin, specifically the Niobrara and Codell areas.
The deal is expected to close inWilliams (NYSE: WMB) has announced its midstream entry into Colorado’s DJ Basin and the exit of Williams Partners L.P. (NYSE: WPZ) from the Four Corners Area in New Mexico and Colorado.early August and will solidify Williams and KKR’s joint venture ownership of the entire Discovery Midstream business. Williams will possess 40% of the JV with KKR owning the remaining 60%. Williams will be the operator of Discovery and will hold most of the governance voting rights.
Williams has also committed to fund additional capital as required to bring its economic ownership to 50/50. Additionally, Williams may acquire a portion of KKR interests at predetermined, agreed-to terms until the sixth anniversary of close.
The Discovery System
- Infrastructure located in Weld and Adams county
- Natural gas and crude oil gathering pipelines
- Cryogenic gas processing capabilities
- Liquids handling and crude oil storage
- 60 MMcf/d of gas processing capacity (additional 200 MMcf/d plant under construction scheduled to come online by the end of 2018)
- 120 miles of natural gas pipeline
- 260,000 acres dedicated to gas gathering
- 60,000 acres for oil gathering.
The addition of Discovery will bring Williams gas processing portfolio total to greater than 1Bcf/d and according to Williams President and CEO, Alan Armstrong, “The acquisition of Discovery is expected to unlock valuable synergies with our current operations and drive increased earnings… 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.”
This move into the DJ will bring much needed takeaway capacity, which has been a thorn in the side of northern Colorado’s’ producers. In May Bart Brookman, president and CEO of PDC Energy (NYSE: PDCE), Lynn Peterson, chairman and CEO of SRC Resources (NYSE: SRCI) and Wouter van Kempen, chairman, president and CEO of DCP Midstream (NYSE: DCP), along with other officers from these companies, discussed takeaway problems in the Wattenberg and some of the infrastructure growth that’s on the drawing boards.
Out of Four Corners
Williams also announced that it is concurrently selling its Four Corners assets in New Mexico and Colorado to Harvest Midstream Company for $1.125 billion cash.
Four Corners assets:
- Located in San Juan and Rio Arriba, NM and in La Plata County, CO
- 3,700 miles of pipeline
- Two gas processing plants
- One CO2 treating facility
This deal is expected to close in the second half of 2018.
Armstrong added that this move is due to “pressure on natural gas pricing from adjacent basins like the Permian”, which is forcing “a new basin model that consolidates and integrates upstream production with midstream operations in a way that optimizes throughput and lowers cost.”
Williams plans to use the cash proceeds to fund growth capital and investment expenditures, with focus on the development of the Discovery acquisition.
