Williams Partners LP (NYSE:WPZ) plans to spend up to $7.8 billion in growth capital through 2017 on projects in the company's Northeastern region, as it seeks to meet the need for natural gas processing and other services from operators active in the Marcellus Shale and other areas.
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Although dry gas development has dropped precipitously over the last two years, the industry is still developing wet gas plays due to the higher returns generated from the sale of natural gas liquids and condensate produced with the natural gas. The Marcellus Shale in southwestern Pennsylvania is one of those areas that produces wet gas and operators have flocked here to take advantage of those higher returns. Williams reports that wells in the wet gas portion of the Marcellus Shale can yield from $4.42 to $6.82 per thousand cubic feet (Mcf), compared to $2.60 per Mcf for dry gas wells.
The company recently closed on the purchase of Caiman Eastern Midstream LLC, a private company with an extensive footprint in the Marcellus Shale. It expects significant growth from these assets through 2014, with gathering volume up by 77% over the next two years.
It also entered a joint venture with Caiman Energy, the parent company of Caiman Eastern Midstream LLC, to construct midstream infrastructure to serve the Utica Shale.
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Laurel Mountain Midstream
Williams operates and owns 51% of the Laurel Mountain Midstream joint venture with Chevron Corp (NYSE:CVX), which will serve operators in the region. This joint venture is ramping up quickly and will be handling 400 million cubic feet of natural gas per day by the middle of 2012. The company estimates that gathering volume here will reach 1 billion cubic feet (Bcf) per day in 2015.
Susquehanna Supply Hub
In the Northeastern area of Pennsylvania, Williams operates the Susquehanna Supply Hub, a collection of gathering, pipeline and processing assets that handles production from this area of the state. The company estimates that gathering volume at Susquehanna will reach 2.4 Bcf per day by 2014.
Cabot Oil and Gas (NYSE:COG) is one of the operators that have contracted to use the Susquehanna Supply Hub. The company entered into a joint venture with Williams to construct a pipeline to connect the hub to a major pipeline system in the area.
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Southwestern Energy (NYSE:SWN) will also use this hub to handle its Marcellus Shale production. The company reported production of 9.3 Bcf from the Marcellus Shale in the first quarter of 2012.
Williams estimates that its investments in infrastructure, in the area, will increase natural gas gathering volume to 5 Bcf per day by 2015. This will boost cash flow for this segment to more than $700 million annually by that year.
The Bottom Line
Williams Partners LP is investing heavily to build midstream assets in the Northeastern United States as the company anticipates strong growth in the development of various unconventional resource plays in this region.
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.