The Williams Companies, Inc. WMB recently reported that it has inked a deal with the Canada Pension Plan Investment Board (“CPPIB”) to create a joint venture (JV), in order to optimize the company’s midstream operations in the western Marcellus and Utica basins. The $3.8-billion partnership incorporates Williams’ Ohio Valley Midstream and Utica East Ohio Midstream systems.
Per the agreement, which is expected to be concluded within the next two quarters, CPPIB will acquire a 35% stake in the JV for around $1.34 billion. Williams is expected to retain the remaining interest in the partnership and act as the operator. Notably, the company acquired the remaining 38% stake in the Utica East Ohio Midstream from Momentum Midstream and included it in the JV’s asset base. The midstream property processes and fractionates natural gas and natural gas liquids (NGLs) in the prolific Utica shale play.
The JV excludes assets like Williams’ interests in Laurel Mountain Midstream, wherein Chevron Corporation CVX is a partner. Williams had Morgan Stanley MS and CIBC Capital Markets as financial advisors for the transaction.
Williams expects the formation of the JV to create cost synergies, and reduce operating and maintenance costs in the assets mentioned above. The move will create an opportunity for the company to invest in the Utica region in a more efficient manner and enable it to provide its clients with enhanced services. This, in turn, will strengthen the company’s presence in the Northeast.
The proceeds from the CPPIB are expected to lend support to Williams in various ways including offsetting Utica East Ohio Midstream acquisition price, reduction of debt burden and others. Notably, the company had $22.4 billion in long-term debt at the end of 2018, representing a debt-to-capitalization ratio of 60.5%. It will provide an updated 2019 financial guidance, incorporating the effects of the creation of the JV, with its first-quarter earnings release.
As far as Canada’s largest pension fund CPPIB is concerned, the JV will provide it with an additional exposure to the natural gas market of North America. Moreover, the move complements CPPIB’s recent investment in Encino Acquisition Partners, which agreed to acquire Chesapeake Energy Corporation’s CHK Utica Shale oil and gas assets in Ohio for $2 billion in July 2018.
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