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Williams Rises After $2.5 Billion Pipeline Deal: Dallas Mover

Williams Cos. rose after the partnership it controls, Williams Partners LP (WPZ), agreed to buy a natural-gas pipeline system in the Marcellus Shale for $2.5 billion in cash and stock.

Williams, based in Tulsa, Oklahoma, climbed 2.9 percent to $31.30 in New York. Williams Cos. owns 72 percent of Williams Partners, the third-biggest U.S. pipeline partnership. Williams Partners fell 3.3 percent to $59.02.

The acquisition from closely held Caiman Energy LLC of pipelines, two processing plants and a gas-liquids fractionator prompted Williams to raise its earnings forecasts for 2012 and 2013 and target a 2012 full-year dividend of $1.20, up 55 percent from last year, according to a statement yesterday.

“We intend to be the number-one or number-two player in the very large Marcellus basin and this moves us another step in that direction,” Williams Chief Executive Officer Alan Armstrong said in a conference call today. “I’m also excited about the follow-on opportunities we hope to be announcing around this transaction in the future.”

Excluding some items, Williams Cos. forecast a midpoint profit of $1.35 a share in 2012 and $1.55 in 2013. That compared with 12 analysts’ average estimate of $1.52 and $1.66, respectively, according to data compiled by Bloomberg. Adjusted 2011 profit was $1.23 a share.

Caiman Energy

Caiman, based in Dallas, has agreements with 10 producers to gather and process gas and petroleum liquids from wells drilled across 236,000 acres in West Virginia (WMKMX), Ohio and Pennsylvania. Williams Partners may be handling as much as 5 billion cubic feet of gas a day from the Marcellus by 2015, Armstrong said on the call.

The partnership will fund the transaction with $1.78 billion in cash and will issue Caiman about 11.8 million Williams Partners units, valued at about $720 million, according to the statement. Williams Cos. will make an additional investment in Williams Partners of $1 billion to help fund the acquisition.

Caiman’s assets will help Williams expand into the liquids- producing areas of southwest Pennsylvania, where Williams also is planning an extension of its Texas-to-New York Transco pipeline, said Bradley Olsen, an analyst with Tudor Pickering Holt & Co. in Houston.

10 Times Earnings

“Williams, even before this deal, had kind of a chokehold on the dry-gas area of the Marcellus, but they didn’t really have any liquids-rich areas,” Olsen said in a telephone interview. He rates Williams Partners a hold and owns none of its units.

Williams is paying about 10 times the Caiman unit’s earnings before interest, taxes, deductions and amortization, Olsen said.

Caiman began building the system in 2009, said William Lemmons, a managing partner at EnCap Flatrock Midstream, a private-equity firm backing Caiman. Williams, with its deeper pockets, can continue to expand the system, he said.

“They’ve got a very long runway for investments,” Lemmons said. “There are literally thousands of well sites to be drilled.”

Williams Partners said it will form a joint venture with Caiman Energy to build more pipelines and processing plants in the Utica Shale, which abuts the Marcellus Shale.

Marcellus and Utica

The Marcellus Shale may hold as much as 141 trillion cubic feet of gas, according to Bloomberg Industries. The Utica Shale may hold as much as 5.5 billion barrels of oil and 15.7 trillion cubic feet of gas, according to the Ohio Department of Natural Resources.

Both fields rely on horizontal drilling and hydraulic fracturing, which blasts high-pressure water and chemicals underground, to produce oil and gas.

Jefferies Group Inc. (JEF) and UBS AG (UBS) acted as financial advisers to Williams Partners on the Caiman transaction and Gibson Dunn & Crutcher LLP (1128L) provided legal counsel. UBS also arranged a loan for Williams Partners to help finance the acquisition. Barclays Plc (BARC) and Citigroup Inc. (C) provided financial advice to Caiman Energy, while Vinson & Elkins LLP (1133L) acted as legal counsel.

Enterprise Products Partners LP (EPD) and Kinder Morgan Energy Partners LP (KMP) are the biggest U.S. pipeline partnerships.

To contact the reporters on this story: Mike Lee in Dallas at mlee326@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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