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Williams 'Vaults' into Canadian Midstream

Williams 'Vaults' into Canadian Midstream

The Williams Companies Inc. made clear its plans to be a serious contender in the Canadian midstream market with an announcement last week that it has reached an agreement to buy most of TransCanada PipeLines Ltd.'s remaining ownership interests in natural gas liquids (NGL) and extraction facilities and one processing plant, as well as a one-third interest in a key Alberta-to-U.S. gas liquids pipeline from Dow Chemical Co.

"We have been wading into the Canadian market for some time," but the agreements with TransCanada and Dow Chemical "allow us to dive in," said Williams spokesman Kelly Swan. He would not disclose how much Williams Energy Canada Inc., a Williams unit, agreed to pay for the midstream and NGL pipeline assets, but he did say it was "several hundred million." The sale of TransCanada's assets is expected to close in the fourth quarter, while the purchase of Dow's interest in the NGL pipeline is targeted for completion by the end of the third quarter, according to Williams.

"This is a key milestone in the life of Williams' midstream business for three reasons. First, it vaults us into Canada for the first time in a prominent way with assets that are located on the doorstep of the Western Canadian Sedimentary Basin, which is a growth basin that has tremendous upside potential. Second, the acquisition reinforces Williams' role as a leading NGL producer in North America. Third, the purchase builds upon our acquisition of MAPCO in 1998 when we added around 10,000 miles of NGL pipes to our gathering and processing operations," said Steve Malcolm, president of Williams' Energy Services business, which oversees the company's midstream operations.

The Williams-TransCanada deal was only one of several new transactions the Canadian pipeline announced it has negotiated with companies to sell off the bulk of its remaining gas liquids and extraction, and gathering and processing assets in western Canada. Most of the asset sales (excluding Williams and two others) are expected to be completed next month, TransCanada said. All of the sales will net TransCanada $1.15 billion.

Included in the $1.15 billion amount were TransCanada's sales of its ownership interests in its East Crossfield gas plant in Calgary to Mobil Oil Canada Ltd., and in its Mosquito Creek, Parkland and Vulcan gas processing facilities in Alberta to AltaGas Service Inc. These transactions closed last month.

Based on prior sales and the new sale agreements, Calgary-based TransCanada estimated that it has achieved about 80% of its intended goal to divest $3 billion of non-core assets. That translates to about $2.4 billion in asset sales since it began its divestiture program last December.

With the purchase of TransCanada's midstream assets, Williams will add to its existing portfolio about 6 Bcf/d of gas processing capacity, 225,000 barrels/day of NGL production capacity, 2,000 miles of NGL transportation pipeline and more than five million b/d of NGL storage capacity in western Canada.

Specifically, it has agreed to buy TransCanada's interests in six facilities - the Cochrane plant in Alberta, with 2.5 Bcf/d of processing capacity; the Redwater fractionation and NGL storage facility in Alberta, with 65,000 b/d of liquids capacity; Empress II plant in Alberta, with gas processing capability in excess of 2.5 Bcf/d; Empress V plant in Alberta, which is currently under construction; the Younger NGL extraction plant in British Columbia, with gas processing capacity of 750 MMcf/d and liquids production capacity of 32,000 b/d; and the West Stoddart processing plant in British Columbia, with capacity of 120 MMcf/d.

Williams purchased TransCanada's 100% ownership interests in the Cochrane, Redwater, Empress II and West Stoddart facilities; its 50% interest in the Empress V plant, and its 43.3% interest in the Younger facility.

Separately, the Tulsa, OK-company has agreed to buy Dow Chemical's 32.5% interest in the Cochin pipeline, a 1,900-mile, 12-inch diameter pipeline that transports NGLs and ethylene from Alberta to destinations in the Upper U.S. Midwest and on to Windsor, ON, with an extension to Sarnia, ON.

The addition of the Cochin pipeline is a "key link" in Williams' strategy to develop a comprehensive transportation, storage and distribution network to every major NGL market in North America, said Steve Springer, Williams' vice president and general manager of midstream operations. Armed with the Dow and TransCanada purchases, Williams is making a "firm commitment to being involved in western Canada because of the growth projections for gas and liquids production," he noted.

Aside from its deals with Williams, Mobil and AltaGas, TransCanada has entered into agreements with other purchasers to sell its: 100% interest in its Zama-area sour gas processing plant and associated gathering system in Alberta; 100% interest in its Central Foothills gas gathering system in Alberta; 100% interest in its Columbia-Minehead gathering system in Alberta; about 98% interest in its Cutbank sweet gas processing plant and associated gathering system; and 52% interest in its Clear Hills sour gas processing plant and associated gathering network. TransCanada would not disclose the identities of the parties with whom it has reached agreements, saying they would be revealed when the sales close, which is expected to occur in late September.

TransCanada said some of the midstream assets still to be sold include: Cancarb Ltd. (a thermal carbon black manufacturing business) and its Alberta-to-Illinois Express oil pipeline. Also it wants to shed a number of non-core international assets: a gas pipeline system, gas treatment plant and offshore gas producing licenses in the Netherlands; a gas pipeline in Colombia; Accroven gas liquids extraction facility in Venezuela; GasPacifico gas pipeline from Argentina to Chile: and a gas pipeline in Mexico. It noted it hopes to sell most of these assets by the end of the year.

Susan Parker

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