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Williams Looks to Expand in Marcellus

Tulsa-based Williams Partner LP is negotiating to buy Delphi Midstream Partners LLC, which among other things would give the natural gas operator ownership of the Laser Gathering System and other facilities that serve the Marcellus Shale.

According to the Williams unit, an agreement is in place to exclusively negotiate with Delphi but because negotiations are ongoing, few details were released.

Williams CEO Alan Armstrong lately has touted the company's strategy to spin off its exploration arm to focus on growing midstream operations. Last month he said a variety of "large-growth assets" could be immediately accretive to Williams' balance sheet, "but for the most part those are going to be smaller kinds of assets, emerging assets" (see Shale Daily, Nov. 3).

Williams, Armstrong said then, would "certainly look at those kinds of assets in basins like the Marcellus where we have great opportunities going forward and have a great opportunity to build a franchise there."

If the partnership were to secure ownership of the 33-mile Laser system, it would gain a 16-inch diameter natural gas pipeline and associated gathering facilities in Susquehanna County, PA. The system also has 10 miles of gathering pipeline in the Southern Tier of New York.

Producers in the Susquehanna County region have been plagued by pipeline constraints as production has overwhelmed available takeaway capacity (see Shale Daily, Nov. 2; Nov. 1).

Williams' long-term exploration forecast has the Marcellus Shale accounting for about 25% of total output, which in turn would help to expand its massive pipeline infrastructure. The rapid build-up in the play has led to infrastructure delays and a lack of takeaway capacity and that has led to "a lot of strains on infrastructure," said the CEO.

Delphi acquired Laser Midstream Energy LP last year and began expanding its Pennsylvania system earlier this year (see Shale Daily, Feb. 3). Delphi also holds the rights to construct and operate midstream infrastructure for acreage leased by Carrizo Oil & Gas Inc. in northeastern Pennsylvania.

Also included in the proposed transaction is Delphi's Mansfield Gathering System, which consists of 19 miles of pipeline in the Barnett Shale near Fort Worth, TX. The Mansfield system has operating capacity of 70 MMcf/d, which could be expanded to 90 MMcf/d with additional compression.

Williams already has a solid portfolio in the Marcellus area. Included is a majority stake (51%) and operatorship in the Laurel Mountain Midstream joint venture in Pennsylvania with Atlas Pipeline Partners LP that currently includes more than 1,000 miles of pipeline with average throughput of 125 MMcf/d. Expansion of this system is ongoing; its ultimate capacity is expected to be about 1.5 Bcf/d.

A growing gathering system in northeastern Pennsylvania includes 75 miles of gathering pipelines and two compressor stations with a current capacity of 230 MMcf/d (see Shale Daily, Nov. 22, 2010). The 33-mile, 24-inch diameter Springville gathering pipeline, now under construction, would connect the new gathering system to the partnership's Transcontinental Gas Pipe Line (Transco) interstate gas pipeline.

Prior to the Delphi negotiations, Williams Partners said its gathering system in northeastern Pennsylvania was expected to ultimately have a capacity of 1.25 Bcf/d.

Williams Partners already has filed a Hart-Scott-Rodino notification for federal approval of the Delphi deal and said "both parties expect to close quickly following receipt of all regulatory approvals and the signing of definitive agreements."

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