Williams Partners L.P. (WPZ) completed its acquisition of Cabot Oil & Gas Corporation‘s (COG) midstream assets in Susquehanna County, Pennsylvania, through its subsidiary, Williams Field Services Company, LLC (“WFS”) for $150 million. The transaction was announced on November 19.
The partnership acquired 75 miles of gathering pipelines and two compressor stations that are currently gathering approximately 230–240 million cubic feet per day (MMcf/d) of Cabot’s natural gas production.
This acquisition also includes a 25-year long-term agreement with Cabot for its production in the northeast Pennsylvania area of the Marcellus Shale. This long-term contract covering approximately 138,000 net acres will benefit both companies.
Under this gathering agreement, WFS is expected to construct pipelines and trunk lines and build two new compressor stations. Moreover, Williams is responsible for connecting all Cabot drilling program wells with specific gathering lines and supply output from Cabot to five interstate delivery points during the 25-year span of the agreement.
Last month, Williams Partners acquired gathering and processing assets in the Piceance Basin of Colorado from Williams Companies (WMB) for $782 million. The assets include the Parachute Plant Complex and three other treating facilities with a combined processing capacity of 1.2 billion cubic feet per day (Bcf/d) and a gathering system with approximately 150 miles of pipeline.
We believe the latest midstream expansion along with its previously announced Springville system is expected to provide significant growth opportunities for Williams Partners by facilitating multiple interstate gas pipelines, including Transco. The Springville system is expected to come online in mid-2011. Moreover, we view this transaction as another positive development in the partnership’s efforts to increase its exposure to the Marcellus Shale region.
We remain optimistic on Williams Partners given its favorable growth outlook, diverse portfolio and visible distribution growth tied to organic projects. However, we believe these favorable attributes are already reflected in the partnership’s valuation. Hence, we maintain our long-term Neutral recommendation for Williams Partners, which is supported by a Zacks #3 Rank (short-term Hold rating).
CABOT OIL & GAS (COG): Free Stock Analysis Report
WILLIAMS COS (WMB): Free Stock Analysis Report
WILLIAMS PTNRS (WPZ): Free Stock Analysis Report
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