Williams Plans to Expand its Deepwater Gulf of Mexico Business

Williams has plans to expand its deepwater Gulf of Mexico business to provide gathering and processing infrastructure for production dedicated by units of Shell, Chevron and BP in the Perdido Foldbelt.

Williams has agreements with the named producers to provide gathering, processing and transportation services over the life of the reserves for expected oil and natural gas production from leases in the Perdido Foldbelt.

Williams plans to invest approximately $480 million in its Perdido Norte Project, which the company will own and operate. The infrastructure investment includes a total of 184 miles of pipeline and expanded natural gas processing capacity. Williams plans to begin pipeline construction in January 2008; the expected date for the pipelines and additional processing capacity to be ready to receive production is around the turn of the decade.

With the Perdido Norte Project, Williams will have invested approximately $1.7 billion in deepwater Gulf of Mexico gathering and processing infrastructure since 1997. The company's previously disclosed capital-spending guidance includes the 2007 and 2008 portion of Williams' planned expenditures for the Perdido Norte Project; the planned source of capital is general operating funds.

Williams' new infrastructure will originate at a floating production facility the producers plan to construct in approximately 8,000 feet of water about 220 miles south of Galveston, Texas.

Under Williams' agreements with the producers, the company will begin collecting volume-based fees for services it provides when production commences. The Great White, Silvertip and Tobago fields are expected to be the source of initial production. By design, Williams' facilities will have capacity to accommodate future production from other Perdido Foldbelt prospects and from potential tie-ins along the new pipeline route.

"Building critical infrastructure for producers in strategic hubs is central to our plans for creating value in the deepwater Gulf of Mexico," said Alan Armstrong, president of Williams' midstream gas gathering and processing business. "Once again, Williams' deep-water experience and our reputation for highly reliable service are key to our ability to win this strategic position in an exciting new area for substantial natural gas and oil production."

Natural Gas Gathering

Williams' design includes 107 miles of natural-gas gathering pipeline with the capacity to transport approximately 265 million cubic feet per day (at a designed quality specification) of production. The pipeline will extend from the producers' floating production facility to Williams' existing Seahawk gathering system. Seahawk connects at Brazos Block 538 with a Williams Transco-operated pipeline that transports natural gas to the company's Markham, Texas, processing plant.

Crude Oil Transportation

The crude-oil transportation component of Williams' new installation is designed to move 150,000 barrels per day (at a designed quality specification) of production to Gulf Coast refineries via the company's planned pipeline and through capacity on an existing, third-party system. Williams' 77-mile, crude- oil pipeline route runs from the producers' floating production facility to the Hoover Offshore Oil Pipeline System (HOOPS). Through an agreement with a unit of ExxonMobil Pipeline Company (an affiliate of ExxonMobil, NYSE: XOM), Williams can deliver crude oil to HOOPS for transportation of crude oil from the offshore interconnect to onshore refineries.

Natural Gas Processing

To accommodate the new production the company expects on its Perdido Norte Project, Williams also plans to significantly increase its daily capacity at its Markham gas-processing plant. The company plans to expand capacity at Markham to more than 500 million cubic feet per day from the existing 300 million level. New Supply Source for Transco

As referenced above, the expected new production volumes will enter a Williams Transco-operated pipeline at Brazos Block 538 as they make their way onshore to the company's Markham gas-processing plant. The 10,500-mile Transco pipeline moves natural gas from the Gulf Coast to 12 Southeast and Atlantic Seaboard states, including major metropolitan areas in New York, New Jersey and Pennsylvania.

"Williams' Perdido Norte Project will provide our customers in some of the nation's largest metropolitan markets, with the opportunity to access this significant new source of supply," said Phil Wright, president of Williams' interstate gas pipeline business.

Gulf of Mexico Portfolio

In addition to the Perdido Norte Project, Williams' current deepwater Gulf of Mexico projects include: expansion of Discovery's system with Williams' Tahiti pipeline project for Chevron's Tahiti discovery in the central region; and installation of export oil and gas pipelines for Chevron's Blind Faith discovery in the eastern region in Mississippi Canyon blocks 695 and 696.

In addition, Williams owns and operates gathering and processing facilities -- onshore and offshore -- from Markham to Mobile, Ala.

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