1 Long-Term Energy Play

One of the best ways to play the growing energy production in the Marcellus shale is through midstream companies. As more and more gas comes out of the ground, the demand for pipelines, processing centers, and storage facilities is skyrocketing. Today, we'll take a look at Williams Partners (NYS: WPZ) , one company seizing the day and increasing its foothold in the region.

The company
Williams Partners is a midstream MLP that covers all the standard bases for the industry: oil and gas pipelines, gas gathering, processing, and natural gas liquids fractionation. The company holds a stake in three pipelines that combine to deliver 14% of all natural gas consumed in the United States. Make no mistake, this is no underdog.

Last year
For the fourth quarter of 2011, Williams Partners missed analyst estimates on revenue, generating $1.81 billion in the face of $2 billion expectations. The number was still an improvement over 2010's fourth-quarter $1.60 billion, however. The company beat expectations on non-GAAP earnings per share, coming in at $1.05 compared to estimates of $1.00.

Estimates for 2012's revenue and earnings per share stand at $2.01 billion and $0.91, respectively. The company is scheduled to report first-quarter results on April 25.

Making moves
On Monday, Williams Partners announced it was buying a natural-gas-gathering subsidiary of Caiman Energy for $2.5 billion.

The acquisition significantly increases Williams' presence in the Marcellus, adding 236,000 acres where it will collect fuel from 10 producers across Pennsylvania, West Virginia, and Ohio. The company estimates there is 300 trillion cubic feet of natural gas within a 35-mile radius of the gathering operation.

Williams Partners expects its newly acquired assets to handle more than 2 billion cubic feet of gas per day by 2020, and generate 300,000 barrels per day of natural gas liquids and condensate.

The deal's impact
The company plans to fund the purchase with cash and stock. Caiman Energy will receive 11.8 million units of Williams Partners, valued at $710 million, as well as $1.78 billion in cash. Williams plans to cover the cash payment by borrowing or raising funds through existing equity.

Neither Williams Partners nor its general partner Williams Cos. (NYS: WMB) has particularly impressive debt-to-equity ratios, so although the deal is expected to generate $40 million in EBITDA this fiscal year, expect some short-term pain. Next year, Williams expects the deal to generate $200 million in additional EBITDA, rising to $400 million in 2014.

Williams Cos., with a 72% stake in the MLP, promptly raised its dividend as the deal was announced. Originally expected to be set at $1.09 per share, the annualized amount was increased to $1.20. It is a 55% increase over 2011's dividend, and Williams plans to continue to increase its annual payment by 20% in 2013 and 2014.

Foolish takeaway
Midstream companies make for great long-term prospects right now. The industry is forced to spend now to develop desperately needed infrastructure, but the capital-intensive investments should pay off down the road.

Stay up to date on company news and analysis by adding Williams Partners and Williams Cos. to My Watchlist.

At the time thisarticle was published Fool contributor Aimee Duffy holds no position in any company mentioned. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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