Williams is moving into the Marcellus Shale play through a newly formed midstream joint venture (JV) with Atlas Pipeline Partners LP. Under the JV, Williams will contribute funds to help Atlas trim its debt in exchange for a 51% piece of the pipeline’s existing Appalachian Basin gathering system, which includes 1,800 miles of intrastate gathering lines serving 6,900 wells.

Average throughput for the Atlas Marcellus system is more than 100 MMcf/d. Atlas Energy Resources LLC, an Atlas Pipeline affiliate, has increased the gathering system’s throughput by 30% in the past year.

“This venture is an ideal midstream growth opportunity for Williams, providing a strategic entry point into one of the largest emerging natural gas plays in North America at an attractive price,” said Williams CEO Steve Malcolm. “Our long experience operating large-scale, reliable midstream assets in areas such as the Rocky Mountains and Gulf of Mexico will benefit the producers as they ramp up their drilling programs over the next several years.”

Williams plans to contribute around $102 million and issue a $25.5 million note payable to newly formed joint venture Laurel Mountain Midstream LLC in exchange for a 51% ownership interest. In addition to its ownership stake, Williams would operate the gathering system.

“Our net proceeds here will aid us in reducing debt and improving the capital structure of our business, and the joint venture will also aid us by providing us the financial leverage needed to fund expansion capital for anticipated growth in production from the Marcellus Shale,” said Atlas Pipeline CEO Gene Dubay.

The joint venture’s anchor customer will be Atlas Energy Resources, whose Marcellus leasehold totals more than 550,000 acres, including 274,000 acres in southwestern Pennsylvania. An estimated 4-6 Tcfe of resource potential may exist in the leasehold, with 4,000-6,000 potential drilling locations with 40-acre spacing, according to Atlas Energy. The producer currently operates around 120 wells in the Marcellus formation.

In addition to the anchor-tenant relationship with Atlas Energy, the JV partners said they plan to offer services to other producers in the future.

The existing southwest Pennsylvania gathering system connects to several interstate gas pipelines and expansions under way by several pipelines, which are expected to offer additional takeaway capacity to the East Coast markets in the future. One of these expansions is Williams’ Rockies Connector project, a proposed expansion of the Transcontinental Gas Pipe Line Corp. (Transco) system, which would connect gas supplies originating from the Appalachian and Rockies regions (see Daily GPI, May 7, 2008).

The agreement between Williams and Atlas Pipeline requires regulatory approvals before it is completed. No closing date was indicated.

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