Natural Gas IPO: Williams Pipeline Partners L.P.

by: Abbi Adest

Williams Pipeline Partners L.P. (WMZ) owns and operates natural gas transportation and storage assets.

All quotations are from the company's most recent S-1 filings with links provided.

Business Overview (from prospectus)

We are a growth-oriented limited partnership recently formed by The Williams Companies, Inc., or Williams, to own and operate natural gas transportation and storage assets. Our primary business objectives are to generate stable cash flows and, over time, to increase our quarterly cash distributions per unit. Our initial asset is a 35% general partnership interest in Northwest Pipeline GP, or Northwest, which owns an approximate 3,900-mile, bi-directional, interstate natural gas pipeline system that extends from the San Juan Basin in New Mexico, through the Rocky Mountains and to the Northwestern United States. Northwest also has working natural gas storage capacity of approximately 12.5 billion cubic feet, or Bcf.

Offering: 16.3 million shares $19.00 - $21.00 per share. Net proceeds of approximately $304.3 million will be used to purchase a 15.9% general partnership interest in Northwest and to pay the expenses associated with this offering and related formation transactions.

Lead Underwriters: Lehman Brothers, Citi, Merrill Lynch

Financial Highlights:

Northwest’s operating revenues increased $71.4 million, or 30%, for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006. Higher rates resulting from its rate case, which became effective January 1, 2007, were the primary reason for this increase. In addition, the Parachute Lateral, placed into service in May 2007, contributed $3.9 million to revenues... Northwest’s transportation service accounted for 96% of its operating revenues for the nine months ended September 30, 2007 and 2006. Natural gas storage service accounted for 3% of operating revenues for each of the nine months ended September 30, 2007 and 2006... Operating expenses decreased $6.9 million, or 5%. This decrease was due primarily to the June 2007 reversal of Northwest’s pension regulatory liability of $16.6 million and a reduction of its accrued ad valorem taxes of $1.6 million to reflect lower 2007 tax assessments on its property. The pension regulatory liability was reversed based upon management’s assessment that the refundability of this obligation in future rates is no longer probable. These decreases were partially offset by a $6.6 million increase in depreciation related to new property additions, a $2.6 million increase in labor costs due to annual salary increases and an increase in the number of employees, a $1.4 million increase in group insurance expense due primarily to rising medical costs and a $1.3 million increase in lease expense due to a change in accounting for its headquarters building lease in the fourth quarter of 2006.


We believe the topography of the Pacific Northwest makes construction of competing pipelines difficult and expensive and it forms a natural barrier to entry for potential competitor pipelines in Northwest’s primary markets such as Seattle, Washington, Portland, Oregon and Boise, Idaho. Northwest’s pipeline is currently the sole source of interstate natural gas transportation in many of the markets it serves. However, there are a number of factors that could increase competition in Northwest’s traditional market area. For example, customers may consider such factors as cost of service and rates, location, reliability, available capacity, flow characteristics, pipeline service offerings, supply abundance and diversity and storage access when analyzing competitive pipeline options.

Competition could arise from new ventures or expanded operations from existing competitors. For example, in late 2006, Northwest Natural Gas Co., Northwest’s second largest customer, announced that it is partnering with TransCanada’s Gas Transmission Northwest, or GTN, to build the Palomar Gas Transmission project. This proposed project would consist of a greenfield pipeline from GTN’s system in central Oregon to Northwest Natural’s system in western Oregon. Palomar could also be used to transport natural gas from one of the proposed Columbia River LNG terminals back to GTN’s system. GTN also previously proposed a 235-mile lateral from its mainline system near Spokane, Washington to the Seattle/Tacoma corridor, or Washington Lateral, as an alternative to Northwest’s Capacity Replacement Project. Puget Sound Energy, Northwest’s largest customer, was the target customer for this lateral. While this pipeline project has not been built, incremental power generation loads requiring a pipeline expansion could cause GTN to reconsider the Washington Lateral project.

Northwest is also experiencing increased competition for domestic supply with the completion of projects such as Kinder Morgan’s Rockies Express and Wyoming Interstate’s Kanda Lateral, which are designed to transport natural gas produced in the Piceance and Uinta Basins to Midwestern and Eastern markets. Additionally, Questar Pipeline and Enterprise Products Partners recently announced plans to construct the White River Hub Project, an approximate seven-mile pipeline to connect to several interstate pipelines in the Greasewood and Meeker, Colorado areas. The net effect of these projects could result in increased liquidity in Piceance Basin gas supplies and a significant narrowing of the price differential between the Rocky Mountains and Sumas natural gas supplies, further increasing overall Pacific Northwest natural gas prices.

Spectra Energy (NYSE:SE) and El Paso Corporation (EP) have each independently proposed new pipeline projects that would begin at the Opal Hub in Wyoming and terminate in Malin, Oregon to create additional access to Rocky Mountain gas in western markets.

In addition, FERC’s continuing efforts to promote competition in the natural gas industry have increased the number of service options available to shippers in the secondary market. As a result, Northwest’s customers’ capacity release and capacity segmentation activities have created an active secondary market which competes with Northwest’s pipeline services. Some customers see this as a benefit because it allows them to effectively reduce the cost of their capacity reservation fees.

Additional Resources: