Williams is taking the long view on North America’s natural gas, agreeing to significantly build its onshore pipeline network by putting up to $2.4 billion into a system once owned by Chesapeake Energy Corp.

The pipeline giant, whose reach now extends from Canada into the deepwater Gulf of Mexico, agreed to take a half-interest in privately held Access Midstream Partners GP (ACMP) and about one-quarter of the limited partner units of Access Midstream Partners LP, which formerly were part of Chesapeake Midstream Partners LP.

The deal “allows us to get very large-scale positions in basins as opposed to having to go in and get struggling positions in basins and try to build those up,” Williams CEO Alan Armstrong said during a conference call late Tuesday.

Private equity fund Global Infrastructure Partners LP (GIP), which was Chesapeake’s partner when the midstream unit was formed in 2009, bought a big chunk of the business earlier this year for about $4 billion and rebranded it under the Access name (see Daily GPI, July 25; July 3; July 7, 2010).

ACMP also plans to spend about $2.16 billion in cash to buy Chesapeake’s remaining midstream assets for sale, which would add midstream properties in the Marcellus, Utica, Eagle Ford and Haynesville shales, as well as the Niobrara formation.

Once the transactions are completed, Williams and GIP each would own a 50% interest in the massive midstream systems; GIP would retain 43% of the limited partnership units.

Access and Williams have little overlap in their operations and would continue as separate companies, said Access CEO Mike Stice, a former Chesapeake executive. Williams would gain a stake in another tax-free master limited partnership similar to Williams Partners LP, which holds most of is gas pipeline assets. Williams’ stake in the general partner of Access would give it an increasing share of cash flow as Access grows; it also would collect dividends.

Williams’ dividends have been boosted by its ownership in Williams Partners, increasing on average 26% a year over the past five years and jumping 54% in the last year. Access is on a similar “inflection curve,” Armstrong told analysts during the conference call.

Armstrong has made no bones about wanting to take Williams and its gas pipeline partnership to the next level. Williams failed last year in a bidding war with Energy Transfer Equity LP to buy pipeliner Southern Union Co. (see Daily GPI, March 27). The company dusted itself off and began its current offerings, particularly in the Northeast and in Canada.

In Canada, among other things, it has expanded long-term liquids and transportation agreements in Canada with an oilsands producer (see Daily GPI, Sept. 27). However, it’s in the Marcellus and Utica shales where most of its build-out has been ramped up, including the Constitution Pipeline Co. LLC, a partnership with Marcellus producer Cabot Oil & Gas Corp. (see Daily GPI, Aug. 16). The pipe is one of several new business and infrastructure expansions both onshore and offshore, which Armstrong has discussed on several occasions (see Daily GPI, Feb. 24).

In March Williams Partners paid $2.5 billion to buy the midstream arm of Marcellus Shale producer Caiman Energy (see Daily GPI, March 21). Caiman Eastern Midstream LLC gathers natural gas liquids in northern West Virginia, southwestern Pennsylvania and eastern Ohio. In June Williams spent $380 million to invest in Caiman’s pipeline network in Ohio’s Utica Shale.

Chesapeake earlier this year set out to find buyers for some of its natural gas operations to finance a plan to cut debt and to help transform the company from the second biggest gas driller to a top oil producer. Its previous $2.16 billion pipeline sale to Access closed Tuesday, along with a separate $175 million sale of pipelines in Texas and Oklahoma. A remaining tranche of pipeline assets is scheduled to close by the end of March for $425 million, it noted.

The major credit ratings agencies weighed in on the multi-layered transaction Wednesday. Fitch Ratings analysts said the deal was “credit neutral” in part because Williams’ liquidity position is expected to “remain strong given its cash resources and minimal refunding requirements.”

Standard & Poor’s Ratings Services credit analyst Michael Grande affirmed Williams’ ratings “based on our view that the investment in Access will add significant resource potential and geographic diversity” to its midstream footprint, “enhancing the consolidated business risk profile.”

Moody’s Investors Service analysts also see the transaction as a benefit to Williams because of its “large asset base of high quality pipeline and midstream assets…In addition, Williams has Canadian midstream assets and some petrochemical infrastructure assets in the U.S. that provide additional unencumbered cash flow sources to support the parent company’s debt…The company has a consistent track record of conservative financial policies and has demonstrated a willingness to use equity funding for acquisitions.”

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