Williams has pulled up its 40-year stake in the oil business to focus on natural gas production, processing and transportation after agreeing to sell its 54.6% stake in Williams Energy Partners LP (WEG) to a group of private equity firms. Williams will receive $512 million in cash, and the agreement also will remove $570 million of the partnership’s debt from Williams’ balance sheet.

WEG, a master limited partnership, has assets that include a 6,700-mile refined products pipeline system, 39 storage terminals, an ammonia pipeline system, five marine terminals and 25 inland terminal facilities connected to third-party pipelines. Its new partners are a jointly formed entity composed of private equity firms Madison Dearborn Partners LLC and Carlyle/Riverstone Global Energy, as well as Power Fund II LP.

“Williams has come a long way in a short time,” said Steve Malcolm, Williams’ CEO. “We are pleased with our continued success in narrowing our focus to key natural gas businesses while at the same time attending to the critical tasks of raising cash and reducing debt to strengthen our balance sheet.” He said the agreement “moves us closer to wrapping up major asset sales and rounding out what Williams will look like in the near future. We are reshaping and resizing Williams to focus on natural gas production, natural gas processing and natural gas transportation.”

Malcolm said, “parting with our interest in Williams Energy Partners substantially ends our nearly four decades of participation in the oil segment of the energy industry.”

The company also unloaded some oil-heavy reserves last week in the Uinta Basin in Utah. It sold about 8.6 million boe (75% light oil and 25% natural gas) of reserves to Berry Petroleum for $49 million. Earlier this month Williams sold a much larger chunk of mainly gas reserves, 311 Bcfe, to XTO for $400 million (see NGI, April 14). The transaction with Berry covers Williams’ Brundage Canyon properties, located in northeastern Utah. The assets consist of 43,500 net acres of producing properties with current production of 2,200 net boe/d of light crude oil and natural gas.

Williams also completed an earn-out provision last Thursday associated with the sale of its former Memphis refinery, which added another $24 million to sales proceeds.

Williams’ pretax gain from the WEG sale would be at least $285 million to $300 million. With the deal, all of WEG’s transactions with Williams eventually would end. The transaction, which is expected to close in May, includes 100% of the ownership interest of the general partner of WEG, 1.1 million common units, 5.7 million subordinated units and 7.8 million Class B common units representing limited partner interests in WEG.

During a conference call to discuss the sale, Don Wellendorf, WEG’s CEO, said the “operations, focus on safety and commitment to customer service will not be impacted by the transaction.” He noted that WEG’s ongoing revenues with Williams “have been dropping very dramatically this year so far. We’ve been kind of under an effort to replace their business, and some of the things they’ve been doing with us, like providing some services to sell our fractionated product we have…we’ve already replaced.”

Wellendorf said Williams’ business totaled “well under $10 million” this year, and he expected it to be “not more than $2-$3 million” in 2004. “Our commercial relationship with them has become pretty much immaterial.” Williams now has three board members on the WEG board, who Wellendorf expects will resign.

Chicago-based Madison Dearborn Partners focuses on investments in several specific industries including natural resources, communications, consumer, health care and financial services. Carlyle/Riverstone is a joint venture between The Carlyle Group and Riverstone Holdings. Riverstone Holdings is a New York-based energy and power-focused private equity firm and the Carlyle Group is a global private equity firm that invests in buyouts, venture, real estate, high yield and turnarounds in North America, Europe and Asia.

With the change in control of the general partner interest, all of the agreements with Williams would be terminated. The new owners of the general partner would continue to provide general and administrative services at costs equivalent to the cap during 2003, and then, beginning in 2004, the cap would escalate at 7% annually. WEG will record a one-time expense of $5 million against the transaction costs, which will be funded out of WEG’s current cash balance.

WEG will continue to be operated by its current management team and its headquarters will remain in Tulsa, Wellendorf said. “I think this transaction is quite attractive for this partnership. We will have a great presence out there with a lot of opportunities for acquisitions,” he added.

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