Williams Partners

Dropdown of olefins production facility and propylene splitter and NGL pipeline into midstream MLP for $2.36 billion in cash and stock.

Williams Companies Inc. (NYSE: WMB) plans to sell its 83% interest in the Geismar olefins production facility and its refinery-grade propylene splitter to its midstream master limited partnership, Williams Partners LP (NYSE: WPZ) for $2.26 billion in cash and stock.

The transaction is in addition to a separate dropdown of its related pipelines in the Gulf coast for $100 million into Williams Partners. Williams Companies controls the general partner of its midstream MLP, Williams Partners LP.
As part of the purchase agreement, Williams also agreed to temporarily waive about $16 million in quarterly incentive distribution rights it generally receives from its Williams Partners until after Dec. 31 2013 or after the Geismar plant expansion is operational. Williams estimates the foregone incentive distribution rights will last about five quarters, which total around $80 million.

The expansion of the Geismar plant is expected to cost $270 million in post-closing costs. In addition, the pipelines will require about $160 million in additional capital expenditures.

Williams Partners said it believes the addition of the olefins production to its business would bring more certainty to cash flows that are exposed to the market for ethane, whose price is volatile. North American ethylene demand is expected to remain strong, given its continuing advantaged costs compared with ethylene derived from crude-oil-based feedstock.

Williams Partners plans to fund the acquisition with the issuance to Williams of 42.8 million Williams Partners limited-partner units, $25 million in cash and an increase to the general partner's capital account to maintain Williams' 2-percent general-partner interest. The transaction is expected to close in early November.

Williams currently owns approximately 66% of Williams Partners, including the general-partner interest. Following the closing of this transaction Williams will own approximately 70% of Williams Partners, including the general-partner interest.

"The addition of the Geismar facility to Williams Partners' portfolio immediately reduces the partnership's exposure to the over-supplied ethane markets by nearly 70% and eliminates it by 2014, while increasing our ability to produce globally marketed ethylene," said Alan Armstrong, chief executive officer of the general partner of Williams Partners. "Bringing this natural hedge to Williams Partners makes it unique among similarly situated MLPs. In addition, it provides strong support for our continuing distribution growth."

Located south of Baton Rouge, La., the Geismar facility is a light-end natural gas liquid (NGL) cracker with current inlet volumes of 39,000 barrels (bbl) per day of ethane and 3,000 bpd of propane and annual production of 1.35 billion pounds of ethylene. With the benefit of a significant expansion under way and scheduled for completion by late 2013, the facility's consumption of ethane will increase to a maximum of 57,000 bbl per day and annual ethylene production capacity will grow by 600 million pounds to 1.95 billion pounds. Williams Partners' overall undivided ownership interest following the expansion will be approximately 88%.