Capital Markets | Midstream - Gas Gathering | Contract Awarded | Private Equity Activity

Williams, Chesapeake Amend Utica, Haynesville Gathering Deal

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Williams announced an expansion of gas gathering services for Chesapeake Energy in growing dry gas production areas of the Utica Shale in eastern Ohio and a consolidation of contracts in the Haynesville Shale in northwestern Louisiana to optimize production opportunities, streamline fee structures and restructure commitments to incentivize long-term development of the fields. The agreements with Chesapeake were entered into by subsidiaries of Williams Partners L.P., of which Williams own 60 percent, including the general partner interest.

Alan Armstrong, chief executive officer of Williams, said: "This demonstrates our commitment to working with Chesapeake to align our interests on mutual growth while sustaining the financial support of our investments. These new fee structures are designed to promote production in the best locations across a wider footprint in these great basins, which improves the economics on both the drilling and midstream side. We’ve also increased certainty around fees and volumes to support our strategy of creating long-term, durable value for shareholders."

Utica Shale

In the Utica, Williams and Chesapeake executed a long-term, fee-based contract that gained a new area of dedication in the dry gas zone where Chesapeake and others are targeting production growth. The agreement extends the length of the Chesapeake acreage dedication to 2035, increases the area of dedication by 50,000 acres from 140,000 acres to 190,000 net acres in a strategic area adjacent to Williams’ existing assets and converts the cost-of-service mechanism to a fixed-fee structure with minimum volume commitments (MVCs).

This change to a fixed-fee contract enhances Williams’ ability to gather third-party volumes and build scale in Utica’s dry gas areas. Williams expects this will provide the opportunity to invest more than $600 million over five years to install more than 200 miles of pipeline and related facilities as this prolific area of the basin grows with up to 800 million cubic feet per day of capacity to serve the development.

Haynesville Shale

The companies also executed a new Haynesville contract that consolidates the Springridge and Mansfield contracts into a single agreement with a fixed-fee structure and a contract term to 2035. The consolidated contract is supported by MVCs and a drilling commitment to turn 140 equivalent wells online before the end of 2017.

This commitment is projected to result in significant production growth in the Haynesville Shale asset over the next two years. The combined contract also better aligns producer-midstream interests, simplifies contract administration, optimizes development of the resource across both Springridge and Mansfield areas and extends the Springridge dedication 15 years to 2035.

Williams expects positive impact to EBITDA in both the Utica and the Haynesville areas due to near-term higher volumes and drilling commitments.