Williams Partners LP on Monday agreed to pay $2.5 billion to buy Caiman Energy’s midstream business, giving it a much bigger footprint in the natural gas liquids (NGL) portion of the Marcellus Shale in northern West Virginia, southwestern Pennsylvania and eastern Ohio. The two companies also are teaming up to build a midstream business in the Utica Shale.

Caiman Eastern Midstream LLC’s independent gathering and processing business includes a gathering system, two processing facilities and a fractionator. Expansions to the gathering system, processing facilities and fractionator are currently under construction; an ethane pipeline also is planned. The assets are tethered by long-term contracted commitments, including 236,000 dedicated gathering acres from 10 producers.

Williams owns 72% of Williams Partners. Caiman Energy’s private equity investors include EnCap Flatrock Midstream, EnCap Investments LP and Highstar Capital.

Williams Partners said it also plans to team up with Caiman Energy and its investors to develop midstream infrastructure in the Utica Shale, primarily in Ohio and northwest Pennsylvania.

“These new assets, anchored by long-term agreements with a diverse set of customers, give us a major presence in the liquids-rich portion of the Marcellus Shale,” said Williams CEO Alan Armstrong. “It’s also just adjacent to the rich gas and oil-producing portions of the Utica Shale, where we’re planning on developing new infrastructure with Caiman…

“We’re putting together the kind of infrastructure that makes drilling in the Marcellus even more desirable for producers because we provide large-scale infrastructure solutions that connect producers’ natural gas and natural gas liquids to the best markets.”

Williams Partners is expecting “significant growth” in gathering volumes and NGL production from the Caiman assets. An estimated 300 Tcfe is in place within a 35-mile radius of the Caiman system and a significant amount is not dedicated, it noted.

“The partnership expects the Caiman system to gather more than 2 Bcf/d and produce approximately 300,000 b/d of NGLs and condensate by 2020,” said Williams Partners. The acquisition is slated to be accretive to projected distributable cash flow to the partnership operations by next year “with substantial projected growth thereafter.”

“Today…marks the beginning of an exciting new alliance with Williams Partners,” said Caiman Energy CEO Jack Lafield. “When you combine our management team and the expertise of both our companies in gas gathering, processing and NGLs, with our shared commitment to community and customer-focused solutions, it’s clear that Caiman and Williams are a powerful team.”

Williams Partners plans to fund the acquisition with a combination of $1.78 billion in cash and issuing Caiman 11.8 million common units valued at about $720 million. The cash portion of the transaction would be funded through a combination of equity, debt and available cash.

Williams also intends to make a $1 billion additional investment in Williams Partners to facilitate the acquisition and would purchase about 16.3 million partnership units at a price equal to the price of the units issued to Caiman. Williams agreed to temporarily waive the general partner incentive distributions through 2013 with respect to the units to be issued.

The acquisition, expected to be completed by the end of June, is subject to customary regulatory filings and approvals.