Williams Partners Buys Chemical Assets After Tax Ruling

Williams Partners LP (WPZ) agreed to acquire chemical and pipeline assets from Williams Cos. (WMB) for $2.36 billion to take advantage of a recent ruling that cuts taxes on ethylene produced from natural gas-based raw materials.

Williams Partners will pay $2.26 billion for plants in Geismar, Louisiana, that make ethylene and propylene, chemicals used to make plastics, and $100 million for Gulf Coast pipelines, the Tulsa, Oklahoma-based companies said today in a statement.

Williams Partners is integrating ethane, a gas component, with ethylene production to reduce earnings fluctuations. The Internal Revenue Service recently ruled that processing natural gas liquids such as ethane into olefins such as ethylene qualify as income for Williams Partners, which is structured as a master-limited partnership.

“The addition of the Geismar facility to Williams Partners’ portfolio immediately reduces the partnership’s exposure to the over-supplied ethane markets,” Williams Partners Chief Executive Officer Alan Armstrong said in the statement. “Bringing this natural hedge to Williams Partners makes it unique among similarly situated MLPs.”

Dow Chemical Co. (DOW), LyondellBasell Industries NV (LYB) and Westlake Chemical Co. said this month they are studying whether to structure U.S. ethylene assets as MLPs, which pay no corporate tax.

Plant Expansion

Williams Partners will be responsible for completing the expansion of the Geismar plant, located south of Baton Rouge, to 1.95 billion pounds of ethylene a year from 1.35 billion pounds, according to the statement.

The partnership also gains a 212-mile (341-kilometer) ethane pipeline between Lake Charles and Geismar, a 3-mile propane pipeline, a 50-mile pipeline between Port Arthur and Lake Charles, and 60 miles of pipelines near the Houston Ship Channel.

Williams Partners said it plans to pay for the assets with 42.8 million limited-partner units, $25 million in cash and an increase to the general partner’s capital account. The deal boosts Williams ownership of the partnership to 70 percent from 66 percent.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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