Williams said Thursday that it paid $117.5 million to Magellan Midstream (formerly Williams Energy Partners) to be released from historical indemnities related to the Magellan pipeline assets that Williams previously owned. The indemnities primarily relate to environmental issues for periods during which Williams was the owner of the Williams Pipe Line system.

In June 2003, Williams divested its interests in Magellan but retained certain environmental and other indemnification obligations. As a result of the indemnities, Williams deferred a portion of the gain that it otherwise would have recognized on the sale of its Magellan interests.

Under the terms of the agreement, Williams will pay Magellan through four structured annual payments beginning on July 1 with a $35 million cash payment and ending on July 1, 2007. In exchange, Magellan is releasing Williams from the historical indemnities related to environmental remediation.

Williams said the agreement will not materially affect its earnings or its previously announced earnings or cash flow guidance.

As of March 31, known liabilities covered by the indemnities totaled $27 million. Magellan’s management estimates that cash expenditures associated with these known liabilities will be paid over the next 10 years.

Magellan said the agreement is “attractive for the partnership.” Don Wellendorf, Magellan’s CEO, said the partnership “will receive 100% of the value of Williams’ remaining indemnification obligations provided both at the time of our initial public offering and when we purchased the Magellan Pipeline.”

“We believe the negotiated settlement is sufficient to cover future liabilities related to these indemnities, and it provides the partnership with greater control of all indemnity related issues,” he said. Magellan said the transaction will have no impact on earnings.

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