TULSA, Okla.--(BUSINESS WIRE)--Williams (NYSE: WMB) today announced two midstream transactions that will result in its entry into Colorado’s Denver-Julesburg (“DJ”) Basin and the exit of Williams Partners L.P. (NYSE: WPZ) from the Four Corners Area in New Mexico and Colorado.
Williams and KKR & Co. (NYSE: KKR) (“KKR”) today announced that they have entered into an agreement to purchase Discovery DJ Services (“Discovery”) from TPG Growth, the middle market and growth equity platform of alternative asset firm TPG, for $1.173 billion, subject to customary closing conditions and purchase price adjustments. Discovery is a Dallas-based provider of natural gas and oil gathering and natural gas processing services in the southern portion of Colorado’s DJ Basin.
When the acquisition closes, which is expected to occur in early August, Williams and KKR will own the entirety of the Discovery midstream business through a joint venture. Williams’ initial economic contribution and ownership will be 40 percent of the purchase price while KKR’s initial economic contribution and ownership will be 60 percent. Under the terms of the agreed-to joint venture, Williams will be the operator of Discovery and will hold a majority of governance voting rights. Williams has committed to fund additional capital as required to bring its economic ownership to 50/50. Additionally, Williams at its option, may acquire a portion of KKR interests at predetermined, agreed-to terms until the sixth anniversary of close. Williams will use the equity method of accounting for this acquisition. Williams expects the Discovery transaction to represent a 5-6 times multiple to Williams’ investment inclusive of additional investments of approximately $250 million between 2018 and 2020 and based on expected 2020 EBITDA forecast; with opportunities for additional improvement based upon the success of natural gas liquids (NGL) opportunities.
Discovery, whose management team is partnering with Williams and KKR to continue executing for the customers of the DJ Basin, provides midstream services to producers drilling the prolific Niobrara and Codell stacked-pay zones of the basin. Discovery’s infrastructure and related facilities are strategically located in Weld and Adams counties in Colorado. The Discovery system includes both natural gas and crude oil gathering pipelines, cryogenic gas processing, liquids handling and crude oil storage. The Discovery assets include 60 million cubic feet per day (MMcf/d) of gas processing capacity with an additional 200 MMcf/d plant that is fully permitted and under construction and is expected to be in service by the end of 2018. The Discovery assets also include 130 miles of natural gas pipeline and approximately 260,000 acres dedicated for gas gathering and processing plus an additional 60,000 acres for oil gathering.
“Adding the fast-growing Discovery midstream business, including sites with permitting underway for greater than 1 Bcf/d of gas processing to our portfolio, follows our strategy of connecting the best supplies to the best markets. This is a great opportunity to expand our asset footprint into a premium-growth basin and brings the benefits of the Williams capability suite to better serve producers in the DJ Basin. The acquisition of Discovery is expected to unlock valuable synergies with our current operations and drive increased earnings,” said Alan Armstrong, president and chief executive officer of Williams. “For example, this transaction allows Williams to take advantage of synergies between the Discovery assets and our downstream businesses via the DJ Lateral of Overland Pass Pipeline (“OPPL”). We will now have the opportunity to integrate output from these acquired assets with production from our existing processing footprint in the West segment into our advantaged downstream assets, including OPPL and the Conway fractionator and storage facilities.”
Concurrent with the announcement of the Discovery transaction, Williams is also announcing the combined sale of assets and equity comprising WPZ’s Four Corners Area (“FCA”) business in New Mexico and Colorado to Harvest Midstream Company (“Harvest”) for $1.125 billion in cash, subject to customary closing conditions. The cash proceeds from the FCA transaction will contribute to funding Williams’ extensive portfolio of attractive growth capital and investment expenditures, including those opportunities associated with the Discovery acquisition. The FCA assets being divested of by Williams are located in San Juan and Rio Arriba Counties in New Mexico and in La Plata County in Colorado and include 3,700 miles of pipeline, two gas processing plants, and one CO2 treating facility. In 2017, the Modified EBITDA contribution from the FCA assets was approximately $85 million and is forecast to be $82 million annualized in 2018. This transaction is expected to close in the second half of 2018, following the closing of the previously-announced merger of WPZ into WMB.
“The FCA transaction is a win-win opportunity for both Williams and Harvest,” said Micheal Dunn, chief operating officer of Williams. The sale of the FCA assets supports Williams’ expansion of operations into the DJ Basin and funding of future growth capital. At the same time, we are pleased that an outstanding midstream services provider like Harvest will be the operator of these assets and know that the employees who move from Williams to Harvest will continue delivering gas gathering and processing expertise that is second to none in that basin.”
Armstrong added, “The Four Corners Area has been an important part of Williams dating back to the acquisition of Northwest Energy in 1983. However, pressure on natural gas pricing from adjacent basins like the Permian, demand a new basin model that consolidates and integrates upstream production with midstream operations in a way that optimizes throughput and lowers cost. We believe that Harvest is ideally positioned to achieve this integration, and Williams can redeploy the proceeds into improved opportunities for growth. The value and multiple on EBITDA that we are receiving is a testament to the high-quality assets that Williams employees have grown and maintained in the basin over the past 35 years.”
For the Discovery acquisition, Simmons acted as the lead financial adviser to both Williams and KKR; Gibson Dunn served as legal counsel to Williams, and Simpson Thatcher served as legal adviser to KKR. For the transaction to divest of its assets in the Four Corners Area, Williams’ lead financial adviser was Morgan Stanley and Davis Polk acted as legal counsel.
Investor Webcast and Conference Call Aug. 2 to Discuss Second-Quarter 2018 Financial Results and Today’s Transactions
The transactions announced today are expected to impact Williams’ guidance provided on May 17, 2018, for capital expenditures. Williams expects to provide an update to 2018 and 2019 capital expenditures guidance, including updates from today’s transactions and other commercial activities on the company’s second-quarter 2018 earnings webcast and conference call scheduled for Aug. 2, 2018, at 9:30 a.m. Eastern Time (8:30 a.m. Central Time). A limited number of phone lines will be available at (877) 260-1479. International callers should dial (334) 323-0522. The conference ID is 1766230. Williams senior management will also discuss today’s transactions during the Aug. 2 webcast and call.
About Williams & Williams Partners
Williams (NYSE: WMB) is a premier provider of large-scale infrastructure connecting U.S. natural gas and natural gas products to growing demand for cleaner fuel and feedstocks. Headquartered in Tulsa, Okla., Williams owns approximately 74 percent of Williams Partners L.P. (NYSE: WPZ). Williams Partners is an industry-leading, large-cap master limited partnership with operations across the natural gas value chain including gathering, processing and interstate transportation of natural gas and natural gas liquids. With major positions in top U.S. supply basins, Williams Partners owns and operates more than 33,000 miles of pipelines system wide – including the nation’s largest volume and fastest growing pipeline – providing natural gas for clean-power generation, heating and industrial use. Williams Partners’ operations touch approximately 30 percent of U.S. natural gas. www.williams.com
KKR is a leading global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate, credit and, through its strategic partners, hedge funds. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation with KKR portfolio companies. KKR invests its own capital alongside its partners' capital and provides financing solutions and investment opportunities through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about KKR & Co. Inc. (NYSE: KKR), please visit KKR's website at www.kkr.com and on Twitter @KKR Co.
About TPG Growth
TPG Growth is the middle market and growth equity investment platform of TPG, the global alternative asset firm. With approximately $13.2 billion of assets under management, TPG Growth targets investments in a broad range of industries and geographies. TPG Growth has the deep sector knowledge, operational resources, and global experience to drive value creation, and help companies reach their full potential. The firm is backed by the resources of TPG, which has approximately $84 billion of assets under management. For more information, visit www.tpg.com.
About Harvest Midstream Company
Harvest Midstream Company, formerly Harvest Pipeline Company, is a privately held midstream services provider based in Houston, Texas, that operates crude oil and natural gas gathering, storage, transportation, treatment and terminalling assets across the Lower 48 and Alaska. To learn more visit www.harvestmidstream.com.
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Forward-looking statements are based on numerous assumptions, uncertainties and risks that could cause future events or results to be materially different from those stated or implied herein. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:
- Satisfaction of the conditions to the completion of the WPZ Merger, including receipt of the Williams stockholder approval, and our ability to close the WPZ Merger;
- Whether WPZ will produce sufficient cash flows to provide expected levels of cash distributions;
- Whether we are able to pay current and expected levels of dividends;
- Whether we will be able to effectively execute our financing plan;
- Availability of supplies, market demand, and volatility of prices;
- Inflation, interest rates, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on customers and suppliers);
- The strength and financial resources of our competitors and the effects of competition;
- Whether we are able to successfully identify, evaluate and timely execute our capital projects and other investment opportunities;
- Our ability to acquire new businesses and assets and successfully integrate those operations and assets into existing businesses as well as successfully expand our facilities;
- Development and rate of adoption of alternative energy sources;
- The impact of operational and developmental hazards and unforeseen interruptions;
- The impact of existing and future laws (including, but not limited to, the Tax Cuts and Jobs Act of 2017), regulations, the regulatory environment, environmental liabilities, and litigation, as well as our ability to obtain necessary permits and approvals, and achieve favorable rate proceeding outcomes;
- Our costs and funding obligations for defined benefit pension plans and other postretirement benefit plans;
- Changes in maintenance and construction costs;
- Changes in the current geopolitical situation;
- Our exposure to the credit risk of our customers and counterparties;
- Risks related to financing, including restrictions stemming from debt agreements, future changes in credit ratings as determined by nationally-recognized credit rating agencies and the availability and cost of capital;
- The amount of cash distributions from and capital requirements of our investments and joint ventures in which we participate;
- Risks associated with weather and natural phenomena, including climate conditions and physical damage to our facilities;
- Acts of terrorism, including cybersecurity threats, and related disruptions;
- Additional risks described in our filings with the Securities and Exchange Commission (SEC).
Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.
In addition to causing our actual results to differ, the factors listed above may cause our intentions to change from those statements of intention set forth herein. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.
Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 22, 2018 and in Part II, Item 1A. Risk Factors in our Quarterly Reports on Form 10-Q.