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Williams Enters DJ Basin in $1.2B Deal, Sells Four Corners Assets to Harvest

Williams (WMB) will add Colorado’s “premium-growth” Denver-Julesburg (DJ) Basin to its oil and natural gas midstream portfolio in a joint venture (JV) with KKR & Co. to buy Discovery DJ Services from TPG Growth in a $1.173 billion deal, the Tulsa-based company said Monday.

As part of the transaction, which is expected to close in early August, Williams’ initial stake would be 40% and KKR’s would be 60%. Williams plans to use equity to fund additional capital to bring its economic ownership to 50/50, and it could acquire more stakes in the future.

Under the terms of the JV, Williams would operate Dallas-based Discovery, which provides midstream services to producers drilling in the prolific Niobrara and Codell stacked-pay zones of the DJ Basin. It would also hold a majority of governance voting rights.

Discovery’s infrastructure and related facilities are strategically located in the Weld and Adams counties in Colorado. The Discovery system includes both gas and crude oil gathering pipelines, cryogenic gas processing, liquids handling and oil storage. The Discovery assets include 60 MMcf/d of gas processing capacity, with an additional 200 MMcf/d plant that is fully permitted, under construction and expected to be in service by the end of 2018. The Discovery assets also include 130 miles of natural gas pipeline and about 260,000 acres dedicated for gas gathering and processing plus an additional 60,000 acres for oil gathering.

“Working with TPG, we’ve taken meaningful steps in growing our platform in the DJ Basin, furthering our objective of providing superior service and maximum value for our producer customers,” said Steven Meisel, Discovery co-founder.

The addition of the fast-growing Discovery midstream business, including sites with permitting underway for greater than 1 Bcf/d of gas processing, to Williams’ portfolio, “follows our strategy of connecting the best supplies to the best markets,” Williams CEO Alan Armstrong said.

The acquisition of Discovery is expected to unlock valuable savings with its current operations and drive increased earnings, he added. For example, the transaction allows Williams “to take advantage of synergies between the Discovery assets and our downstream businesses via the DJ Lateral of Overland Pass Pipeline (OPPL). We will now have the opportunity to integrate output from these acquired assets with production from our existing processing footprint in the West segment into our advantaged downstream assets, including OPPL and the Conway fractionator and storage facilities.”

Williams Exits Four Corners

Separately, Williams also announced on Monday its combined sale of assets and equity comprising Williams Partners LP’s (WPZ) Four Corners Area (FCA) business in New Mexico and Colorado to Harvest Midstream Co. in a $1.125 billion all-cash deal.

The FCA assets being divested are in the San Juan and Rio Arriba counties of New Mexico and in La Plata County in Colorado and include 3,700 miles of pipeline, two gas processing plants and one carbon dioxide treating facility. The transaction, which is subject to customary closing conditions, is expected to close in the second half of 2018, following the closing of the previously announced merger of WPZ into WMB.

The cash proceeds from the FCA transaction would contribute to funding Williams’ extensive portfolio of growth capital and investment expenditures, including those opportunities associated with the Discovery acquisition.

“The Four Corners Area has been an important part of Williams dating back to the acquisition of Northwest Energy in 1983. However, pressure on natural gas pricing from adjacent basins like the Permian demand a new basin model that consolidates and integrates upstream production with midstream operations in a way that optimizes throughput and lowers cost,” Armstrong said, citing Harvest’s ideal position to achieve this integration.

Meanwhile, Williams COO Michael Dunn expressed confidence that an outstanding midstream services provider like Harvest will be the operator of these assets and “know that the employees who move from Williams to Harvest will continue delivering gas gathering and processing expertise that is second to none in that basin.”

Houston-based Harvest is a privately held midstream services provider with assets in Alaska, Louisiana, New Mexico, Ohio, Pennsylvania and Texas.

“This is an important investment for Harvest and part of our continued commitment to the Four Corners region. We believe this will be a significant economic benefit for the community,” Harvest CEO Jason Rebrook said. “Our focus is on becoming the premier midstream services provider in the San Juan by reliably serving all of our customers.”

Williams is scheduled to discuss second quarter earnings on a call with investors on Thursday.

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