##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 1-32599
 WILLIAMS PARTNERS L.P.
  DELAWARE
    
    20-2485124(State or other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)ONE WILLIAMS CENTERTULSA, OKLAHOMA
    
    74172-0172(Address of principal executive offices)
    
    (Zip Code)
 
 
 þ o
  o þ o
 o þ




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##### 



WILLIAMS PARTNERS L.P.
INDEX
  
 PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Statements of Income  Three and Six Months Ended June 30, 2007 and 2006
    
    
    3Consolidated Balance Sheets  June 30, 2007 and December 31, 2006
    
    
    4Consolidated Statements of Cash Flows  Six Months Ended June 30, 2007 and 2006
    
    
    5Consolidated Statement of Partners Capital from January 1, 2007 to June 30, 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35Part II. Other InformationItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 6. Exhibits
    
    
    37Rule 13a-14(a)/15d-14(a) Certification of CEORule 13a-14(a)/15d-14(a) Certification of CFOSection 1350 Certifications of CEO and CFO
  FORWARD-LOOKING STATEMENTS
   
    
    amounts and nature of future capital expenditures;
    
    expansion and growth of our business and operations;
    
    business strategy;
    
    cash flow from operations;
    
    seasonality of certain business segments; and
    
    natural gas liquids and gas prices and demand.
 1




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
    
    We may not have sufficient cash from operations to enable us to pay the minimum
quarterly distribution following establishment of cash reserves and payment of fees and
expenses, including payments to our general partner.
    
    Because of the natural decline in production from existing wells and competitive
factors, the success of our gathering and transportation businesses depends on our ability
to connect new sources of natural gas supply, which is dependent on factors beyond our
control. Any decrease in supplies of natural gas could adversely affect our business and
operating results.
    
    Our processing, fractionation and storage businesses could be affected by any decrease
in the price of natural gas liquids or a change in the price of natural gas liquids
relative to the price of natural gas.
    
    Lower natural gas and oil prices could adversely affect our fractionation and storage
businesses.
    
    We depend on certain key customers and producers for a significant portion of our
revenues and supply of natural gas and natural gas liquids. The loss of any of these key
customers or producers could result in a decline in our revenues and cash available to pay
distributions.
    
    If third-party pipelines and other facilities interconnected to our pipelines and
facilities become unavailable to transport natural gas and natural gas liquids or to treat
natural gas, our revenues and cash available to pay distributions could be adversely
affected.
    
    Our future financial and operating flexibility may be adversely affected by restrictions
in our indentures and by our leverage.
    
    The revolving credit facility of The Williams Companies, Inc. (Williams) and Williams
public indentures contain financial and operating restrictions that may limit our access to
credit. In addition, our ability to obtain credit in the future will be affected by
Williams credit ratings.
    
    Our general partner and its affiliates have conflicts of interest and limited fiduciary
duties, which may permit them to favor their own interests to the detriment of our
unitholders.
    
    Even if unitholders are dissatisfied, they currently have little ability to remove our
general partner without its consent.
    
    Unitholders may be required to pay taxes on your share of our income even if you do not
receive any cash distributions from us.
    
    Our operations are subject to operational hazards and unforeseen interruptions for which
we may or may not be adequately insured.
   2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands, except per-unit amounts)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006*
    
    
    2007
    
    
    2006*Revenues:Product sales:Affiliate
    
    $
    62,119
    
    
    $
    63,370
    
    
    $
    118,671
    
    
    $
    121,766Third-party
    
    
    5,070
    
    
    
    7,766
    
    
    
    11,383
    
    
    
    10,558Gathering and processing:Affiliate
    
    
    8,743
    
    
    
    10,756
    
    
    
    18,234
    
    
    
    20,689Third-party
    
    
    51,422
    
    
    
    49,405
    
    
    
    102,525
    
    
    
    100,781Storage
    
    
    6,818
    
    
    
    5,924
    
    
    
    13,228
    
    
    
    11,029Fractionation
    
    
    2,616
    
    
    
    2,989
    
    
    
    4,533
    
    
    
    6,942Other
    
    
    2,481
    
    
    
    976
    
    
    
    4,510
    
    
    
    2,156Total revenues
    
    
    139,269
    
    
    
    141,186
    
    
    
    273,084
    
    
    
    273,921Costs and expenses:Product cost and shrink replacement:Affiliate
    
    
    18,520
    
    
    
    18,057
    
    
    
    40,245
    
    
    
    39,437Third-party
    
    
    26,157
    
    
    
    26,662
    
    
    
    46,627
    
    
    
    49,282Operating and maintenance expense (excluding depreciation):Affiliate
    
    
    10,484
    
    
    
    13,401
    
    
    
    24,812
    
    
    
    29,087Third-party
    
    
    23,759
    
    
    
    28,167
    
    
    
    51,944
    
    
    
    49,267Depreciation, amortization and accretion
    
    
    11,234
    
    
    
    10,852
    
    
    
    24,412
    
    
    
    21,566General and administrative expense:Affiliate
    
    
    9,644
    
    
    
    9,227
    
    
    
    19,050
    
    
    
    16,508Third-party
    
    
    1,189
    
    
    
    950
    
    
    
    1,853
    
    
    
    2,255Taxes other than income
    
    
    2,626
    
    
    
    1,757
    
    
    
    4,740
    
    
    
    4,040Other (income) expense
    
    
    198
    
    
    
    328
    
    
    
    658
    
    
    
    (3,315
    )Total costs and expenses
    
    
    103,811
    
    
    
    109,401
    
    
    
    214,341
    
    
    
    208,127Operating income
    
    
    35,458
    
    
    
    31,785
    
    
    
    58,743
    
    
    
    65,794Equity earnings-Discovery Producer Services
    
    
    3,875
    
    
    
    3,521
    
    
    
    7,806
    
    
    
    9,192Interest expense:Affiliate
    
    
    (15
    )
    
    
    (15
    )
    
    
    (30
    )
    
    
    (30
    )Third-party
    
    
    (14,395
    )
    
    
    (633
    )
    
    
    (28,770
    )
    
    
    (854
    )Interest income
    
    
    1,261
    
    
    
    110
    
    
    
    2,244
    
    
    
    180Net income
    
    $
    26,184
    
    
    $
    34,768
    
    
    $
    39,993
    
    
    $
    74,282Allocation of net income:Net income
    
    $
    26,184
    
    
    $
    34,768
    
    
    $
    39,993
    
    
    $
    74,282Allocation of net income to general partner
    
    
    3,964
    
    
    
    30,973
    
    
    
    4,855
    
    
    
    65,589Allocation of net income to limited partners
    
    $
    22,220
    
    
    $
    3,795
    
    
    $
    35,138
    
    
    $
    8,693Basic and diluted net income per limited partner unit:Common units
    
    $
    0.56
    
    
    $
    0.25
    
    
    $
    0.87
    
    
    $
    0.60Subordinated units
    
    
    0.56
    
    
    
    0.25
    
    
    
    0.87
    
    
    
    0.60Weighted average number of units outstanding:Common units
    
    
    32,358,798
    
    
    
    7,923,619
    
    
    
    32,358,798
    
    
    
    7,467,417Subordinated units
    
    
    7,000,000
    
    
    
    7,000,000
    
    
    
    7,000,000
    
    
    
    7,000,000
 
 *
    
    Restated as discussed in Note 1.  3




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WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 June 30,
    
    
    December 31,2007
    
    
    2006*(Thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,844
    
    
    $
    57,541Accounts receivable:Trade
    
    
    19,655
    
    
    
    18,320Affiliate
    
    
    9,241
    
    
    
    12,420Other
    
    
    3,220
    
    
    
    3,991Gas purchase contract  affiliate
    
    
    2,377
    
    
    
    4,754Product imbalance
    
    
    4,762
    
    
    
    Prepaid expense
    
    
    3,711
    
    
    
    3,765Other current assets
    
    
    2,596
    
    
    
    2,534Total current assets
    
    
    66,406
    
    
    
    103,325Investment in Discovery Producer Services
    
    
    207,290
    
    
    
    221,187Property, plant and equipment, net
    
    
    649,803
    
    
    
    647,578Other assets
    
    
    32,014
    
    
    
    34,752Total assets
    
    $
    955,513
    
    
    $
    1,006,842LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable    trade
    
    $
    23,066
    
    
    $
    19,827Product imbalance
    
    
    
    
    
    
    651Deferred revenue
    
    
    10,152
    
    
    
    3,382Accrued interest
    
    
    24,546
    
    
    
    2,796Other accrued liabilities
    
    
    12,408
    
    
    
    13,377Total current liabilities
    
    
    70,172
    
    
    
    40,033Long-term debt
    
    
    750,000
    
    
    
    750,000Environmental remediation liabilities
    
    
    3,964
    
    
    
    3,964Other noncurrent liabilities
    
    
    6,466
    
    
    
    3,749Commitments and contingent liabilities (Note 8).Partners capital
    
    
    124,911
    
    
    
    209,096Total liabilities and partners capital
    
    $
    955,513
    
    
    $
    1,006,842
 
 *
    
    Restated as discussed in Note 1.  4




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WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months EndedJune 30,2007
    
    
    2006*(Thousands)OPERATING ACTIVITIES:Net income
    
    $
    39,993
    
    
    $
    74,282Adjustments to reconcile to cash provided by operations:Depreciation, amortization and accretion
    
    
    24,412
    
    
    
    21,566Amortization of gas purchase contract  affiliate
    
    
    2,377
    
    
    
    2,676Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (2,779
    )Equity
earnings of Discovery Producer Services
    
    
    (7,806
    )
    
    
    (9,192
    )Distributions
related to equity earnings of
Discovery Producer Services
    
    
    7,806
    
    
    
    8,000Cash provided (used) by changes in assets and liabilities:Accounts receivable
    
    
    2,615
    
    
    
    (13,814
    )Prepaid expense
    
    
    (24
    )
    
    
    (544
    )Other current assets
    
    
    19
    
    
    
    Accounts payable
    
    
    3,239
    
    
    
    (6,009
    )Product imbalance
    
    
    (5,414
    )
    
    
    (2,612
    )Deferred revenue
    
    
    6,770
    
    
    
    3,484Accrued liabilities
    
    
    23,437
    
    
    
    (1,355
    )Other, including changes in non-current liabilities
    
    
    619
    
    
    
    (207
    )Net cash provided by operating activities
    
    
    98,043
    
    
    
    73,496INVESTING ACTIVITIES:Purchase of equity investment
    
    
    (69,061
    )
    
    
    (155,627
    )Distributions in excess of equity earnings of
Discovery Producer Services
    
    
    6,663
    
    
    
    Property, plant and equipment:Capital expenditures
    
    
    (21,703
    )
    
    
    (18,257
    )Change in accrued liabilities-capital expenditures
    
    
    (2,810
    )
    
    
    Proceeds from sales of property, plant and equipment
    
    
    
    
    
    
    7,430Net cash used by investing activities
    
    
    (86,911
    )
    
    
    (166,454
    )FINANCING ACTIVITIES:Proceeds from sale of common units
    
    
    
    
    
    
    227,107Proceeds from debt issuance
    
    
    
    
    
    
    150,000Excess purchase price over contributed basis of equity
investment
    
    
    (8,939
    )
    
    
    (204,373
    )Payment of debt issuance costs
    
    
    
    
    
    
    (3,188
    )Payment of offering costs
    
    
    
    
    
    
    (1,863
    )Distributions to unitholders
    
    
    (40,557
    )
    
    
    (10,433
    )Distributions to The Williams Companies, Inc.
    
    
    
    
    
    
    (46,863
    )General partner contributions
    
    
    
    
    
    
    4,841Contributions per omnibus agreement
    
    
    1,667
    
    
    
    2,431Net cash provided (used) by financing activities
    
    
    (47,829
    )
    
    
    117,659Increase (decrease) in cash and cash equivalents
    
    
    (36,697
    )
    
    
    24,701Cash and cash equivalents at beginning of period
    
    
    57,541
    
    
    
    6,839Cash and cash equivalents at end of period
    
    $
    20,844
    
    
    $
    31,540
 
 *
    
    Restated as discussed in Note 1.  5




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WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
 (Unaudited)
 AccumulatedOther
    
    
    TotalLimited Partners
    
    
    
    
    
    
    General
    
    
    Comprehensive
    
    
    PartnersCommon
    
    
    Class B
    
    
    Subordinated
    
    
    Partner
    
    
    Loss
    
    
    Capital(Thousands)Balance  January 1, 2007*
    
    $
    733,878
    
    
    $
    241,923
    
    
    $
    108,862
    
    
    $
    (875,567
    )
    
    
    
    
    
    $
    209,096Comprehensive income:Net income
    
    
    23,530
    
    
    
    6,266
    
    
    
    6,446
    
    
    
    3,751
    
    
    
    
    
    
    
    39,993Other comprehensive loss:Net unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    (73
    )Total other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,920Cash distributions
    
    
    (24,787
    )
    
    
    (6,601
    )
    
    
    (6,790
    )
    
    
    (2,379
    )
    
    
    
    
    
    
    (40,557
    )Contributions pursuant to the
omnibus agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,667
    
    
    
    
    
    
    
    1,667Conversion of B units to Common
(6,805,492 units)
    
    
    241,588
    
    
    
    (241,588
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Distribution to general
partner in exchange for
additional investment in
Discovery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78,000
    )
    
    
    
    
    
    
    (78,000
    )Discovery distributions to The Williams
Companies, Inc., not attributable to the Partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,235
    )
    
    
    
    
    
    
    (7,235
    )Other
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Balance  June 30, 2007
    
    $
    974,229
    
    
    $
    
    
    
    $
    108,518
    
    
    $
    (957,763
    )
    
    $
    (73
    )
    
    $
    124,911
 
 *
    
    Restated as discussed in Note 1.  6




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WILLIAMS PARTNERS L.P.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1. Organization and Basis of Presentation
       7




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Note 2. Recent Accounting Standards
  Note 3. Allocation of Net Income and Distributions
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006*
    
    
    2007
    
    
    2006*Allocation to general partner:Net income
    
    $
    26,184
    
    
    $
    34,768
    
    
    $
    39,993
    
    
    $
    74,282Net income applicable to pre-partnership operations allocated
to general partner
    
    
    (1,291
    )
    
    
    (31,798
    )
    
    
    (2,602
    )
    
    
    (67,103
    )Charges direct to general partner:Reimbursable general and administrative costs
    
    
    598
    
    
    
    798
    
    
    
    1,190
    
    
    
    1,587Core drilling indemnified costs
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    105Total charges direct to general partner
    
    
    598
    
    
    
    903
    
    
    
    1,190
    
    
    
    1,692Income subject to 2% allocation of general
partner interest
    
    
    25,491
    
    
    
    3,873
    
    
    
    38,581
    
    
    
    8,871General partners share of net income
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %General partners allocated share of net income (loss) before
items directly allocable to general partner interest
    
    
    509
    
    
    
    78
    
    
    
    771
    
    
    
    178Incentive distributions paid to general
partner**
    
    
    965
    
    
    
    
    
    
    
    1,568
    
    
    
    Direct charges to general partner
    
    
    (598
    )
    
    
    (903
    )
    
    
    (1,190
    )
    
    
    (1,692
    )Pre-partnership net income allocated to general partner
    
    
    1,291
    
    
    
    31,798
    
    
    
    2,602
    
    
    
    67,103Net income allocated to general partner
    
    $
    2,167
    
    
    $
    30,973
    
    
    $
    3,751
    
    
    $
    65,589Net income
    
    $
    26,184
    
    
    $
    34,768
    
    
    $
    39,993
    
    
    $
    74,282Net income allocated to general partner
    
    
    2,167
    
    
    
    30,973
    
    
    
    3,751
    
    
    
    65,589Net income allocated to limited partners
    
    $
    24,017
    
    
    $
    3,795
    
    
    $
    36,242
    
    
    $
    8,693
 8




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*
    
    Restated as discussed in Note 1.**
    
    Under the two class method of computing earnings per share prescribed by SFAS No. 128,
Earnings Per Share, earnings are to be allocated to participating securities as if all of the
earnings for the period had been distributed. As a result, the general partner receives an
additional allocation of income in quarterly periods where an assumed incentive distribution,
calculated as if all earnings for the period had been distributed, exceeds the actual incentive
distribution. The assumed incentive distribution for the three and six months ended June 30, 2007
is $2.9 million. There were no assumed incentive distributions for the three or six months ended
June 30, 2006. This results in an allocation of income for the calculation of earnings per limited
partner unit as shown on the Consolidated Statements of Income.   Per Unit
    
    Common
    
    Subordinated
    
    Class B
    
    General
    
    Total CashPayment Date
    
    Distribution
    
    Units
    
    Units
    
    Units
    
    Partner
    
    Distribution2/14/2006
    
    $
    0.3500
    
    
    $
    2,452
    
    
    $
    2,450
    
    
    $
    
    
    
    $
    100
    
    
    $
    5,0025/15/2006
    
    $
    0.3800
    
    
    $
    2,662
    
    
    $
    2,660
    
    
    $
    
    
    
    $
    109
    
    
    $
    5,4318/14/2006 (a)
    
    $
    0.4250
    
    
    $
    6,204
    
    
    $
    2,975
    
    
    $
    
    
    
    $
    263
    
    
    $
    9,44211/14/2006 (b)
    
    $
    0.4500
    
    
    $
    6,569
    
    
    $
    3,150
    
    
    $
    
    
    
    $
    401
    
    
    $
    10,1202/14/2007 (c)
    
    $
    0.4700
    
    
    $
    12,010
    
    
    $
    3,290
    
    
    $
    3,198
    
    
    $
    993
    
    
    $
    19,4915/15/2007 (d)
    
    $
    0.5000
    
    
    $
    12,777
    
    
    $
    3,500
    
    
    $
    3,403
    
    
    $
    1,386
    
    
    $
    21,0668/14/2007 (e)
    
    $
    0.5250
    
    
    $
    16,989
    
    
    $
    3,675
    
    
    $
    
    
    
    $
    1,714
    
    
    $
    22,378
 
 (a)
    
    Includes $0.1 million incentive distribution rights payment to the general partner.(b)
    
    Includes $0.2 million incentive distribution rights payment to the general partner.(c)
    
    Includes $0.6 million incentive distribution rights payment to the general partner.(d)
    
    Includes $1.0 million incentive distribution rights payment to the general partner.(e)
    
    The board of directors of our general partner declared this cash distribution on July
26, 2007 to be paid on August 14, 2007 to unitholders of record at the close of business on
August 7, 2007. Includes $1.3 million incentive distribution rights payment to the general
partner. 9




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##### Table of Contents



Note 4. Out of Period Adjustments
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Increase (decrease) in income/expenseGathering and Processing WestAdjustment to correct
carrying value of
prepaid right-of-way
asset recorded from
2001 through 2006
    
    $
    
    
    
    $
    
    
    
    $
    1,243
    
    
    $
    Adjustment to correct
the 2006 incentive
compensation accrual
    
    
    
    
    
    
    
    
    
    
    (899
    )
    
    
    Adjustment to correct
the asset retirement
obligation originally
recorded in 2005
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    Adjustment to correct
the accounts payable
balance recorded in
2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,000
    )Misstated accounts
payable balance at
March 31, 2006
corrected in the second
quarter of 2006
    
    
    
    
    
    
    1,300
    
    
    
    
    
    
    
    Misstated accounts
payable balance at June
30, 2006 corrected in
the third quarter of
2006
    
    
    
    
    
    
    (2,000
    )
    
    
    
    
    
    
    (2,000
    )Adjustment to record
condensate revenue on a
current basis
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    1,900
 10




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##### Table of Contents



Note 5. Equity Investments
  Discovery Producer Services LLC
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Current assets
    
    $
    52,978
    
    
    $
    73,841Non-current restricted cash and cash equivalents
    
    
    5,955
    
    
    
    28,773Property, plant and equipment, net
    
    
    372,770
    
    
    
    355,304Current liabilities
    
    
    (33,420
    )
    
    
    (40,559
    )Non-current liabilities
    
    
    (3,894
    )
    
    
    (3,728
    )Members capital
    
    $
    394,389
    
    
    $
    413,631
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)Revenues:Affiliate
    
    $
    48,635
    
    
    $
    22,451
    
    
    $
    93,168
    
    
    $
    75,237Third-party
    
    
    14,869
    
    
    
    10,465
    
    
    
    22,817
    
    
    
    19,799Costs and expenses:Affiliate
    
    
    24,017
    
    
    
    7,464
    
    
    
    47,172
    
    
    
    41,135Third-party
    
    
    32,414
    
    
    
    21,152
    
    
    
    56,534
    
    
    
    41,202Interest income
    
    
    (422
    )
    
    
    (601
    )
    
    
    (1,083
    )
    
    
    (1,227
    )Loss on sale of operating assets
    
    
    1,071
    
    
    
    
    
    
    
    603
    
    
    
    Foreign exchange gain
    
    
    (36
    )
    
    
    (967
    )
    
    
    (252
    )
    
    
    (1,394
    )Net income
    
    $
    6,460
    
    
    $
    5,868
    
    
    $
    13,011
    
    
    $
    15,320
 11




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Note 6. Credit Facilities and Long-Term Debt
 Credit Facilities
   Long-Term Debt
  Note 7. Derivative Instruments and Hedging Activities
 Accounting policy
   12




---



##### Table of Contents



Energy commodity cash flow hedges
  Note 8. Commitments and Contingencies
 Environmental Matters-Four Corners.
    13




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##### Table of Contents



Will Price.
 Grynberg.
 14




---



##### Table of Contents



Vendor Dispute.
 Outstanding Registration Rights Agreement.
 Other.
 Summary.
 15




---



##### Table of Contents



Note 9. Segment Disclosures
  Gathering &
    
    
    Gathering &Processing -
    
    
    Processing -
    
    
    NGLWest
    
    
    Gulf
    
    
    Services
    
    
    Total(In thousands)Three Months Ended June 30, 2007:Segment revenues
    
    $
    125,047
    
    
    $
    459
    
    
    $
    13,763
    
    
    $
    139,269Operating and maintenance expense
    
    
    29,487
    
    
    
    361
    
    
    
    4,395
    
    
    
    34,243Product cost and shrink replacement
    
    
    42,313
    
    
    
    
    
    
    
    2,364
    
    
    
    44,677Depreciation, amortization and accretion
    
    
    10,203
    
    
    
    303
    
    
    
    728
    
    
    
    11,234Direct general and administrative expense
    
    
    1,797
    
    
    
    
    
    
    
    470
    
    
    
    2,267Other, net
    
    
    2,624
    
    
    
    
    
    
    
    200
    
    
    
    2,824Segment operating income (loss)
    
    
    38,623
    
    
    
    (205
    )
    
    
    5,606
    
    
    
    44,024Equity earnings  Discovery Producer Services
    
    
    
    
    
    
    3,875
    
    
    
    
    
    
    
    3,875Segment profit
    
    $
    38,623
    
    
    $
    3,670
    
    
    $
    5,606
    
    
    $
    47,899Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    44,024General and administrative expenses:Allocated  affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,430
    )Third party  direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,136
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    35,458Three Months Ended June 30, 2006*:Segment revenues
    
    $
    127,794
    
    
    $
    676
    
    
    $
    12,716
    
    
    $
    141,186Operating and maintenance expense
    
    
    34,525
    
    
    
    231
    
    
    
    6,812
    
    
    
    41,568Product cost and shrink replacement
    
    
    41,800
    
    
    
    
    
    
    
    2,919
    
    
    
    44,719Depreciation, amortization and accretion
    
    
    9,952
    
    
    
    300
    
    
    
    600
    
    
    
    10,852Direct general and administrative expense
    
    
    2,361
    
    
    
    7
    
    
    
    235
    
    
    
    2,603Other, net
    
    
    1,919
    
    
    
    
    
    
    
    166
    
    
    
    2,085Segment operating income
    
    
    37,237
    
    
    
    138
    
    
    
    1,984
    
    
    
    39,359Equity earnings  Discovery Producer Services
    
    
    
    
    
    
    3,521
    
    
    
    
    
    
    
    3,521Segment profit
    
    $
    37,237
    
    
    $
    3,659
    
    
    $
    1,984
    
    
    $
    42,880Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,359General and administrative expenses:Allocated  affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,988
    )Third party  direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (586
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    31,785
 
 *
    
    Restated as discussed in Note 1. 16




---



##### Table of Contents



Gathering &
    
    
    Gathering &Processing -
    
    
    Processing -
    
    
    NGLWest
    
    
    Gulf
    
    
    Services
    
    
    Total(In thousands)Six Months Ended June 30, 2007:Segment revenues
    
    $
    245,475
    
    
    $
    1,020
    
    
    $
    26,589
    
    
    $
    273,084Operating and maintenance expense
    
    
    62,584
    
    
    
    911
    
    
    
    13,261
    
    
    
    76,756Product cost and shrink replacement
    
    
    81,988
    
    
    
    
    
    
    
    4,884
    
    
    
    86,872Depreciation, amortization and accretion
    
    
    22,378
    
    
    
    607
    
    
    
    1,427
    
    
    
    24,412Direct general and administrative expense
    
    
    3,618
    
    
    
    
    
    
    
    968
    
    
    
    4,586Other, net
    
    
    5,008
    
    
    
    
    
    
    
    390
    
    
    
    5,398Segment operating income (loss)
    
    
    69,899
    
    
    
    (498
    )
    
    
    5,659
    
    
    
    75,060Equity earnings  Discovery Producer Services
    
    
    
    
    
    
    7,806
    
    
    
    
    
    
    
    7,806Segment profit
    
    $
    69,899
    
    
    $
    7,308
    
    
    $
    5,659
    
    
    $
    82,866Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    75,060General and administrative expenses:Allocated  affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,654
    )Third party  direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,663
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    58,743Six Months Ended June 30, 2006*:Segment revenues
    
    $
    243,466
    
    
    $
    1,409
    
    
    $
    29,046
    
    
    $
    273,921Operating and maintenance expense
    
    
    63,620
    
    
    
    473
    
    
    
    14,261
    
    
    
    78,354Product cost and shrink replacement
    
    
    80,077
    
    
    
    
    
    
    
    8,642
    
    
    
    88,719Depreciation, amortization and accretion
    
    
    19,766
    
    
    
    600
    
    
    
    1,200
    
    
    
    21,566Direct general and administrative expense
    
    
    5,761
    
    
    
    9
    
    
    
    536
    
    
    
    6,306Other, net
    
    
    352
    
    
    
    
    
    
    
    373
    
    
    
    725Segment operating income
    
    
    73,890
    
    
    
    327
    
    
    
    4,034
    
    
    
    78,251Equity earnings  Discovery Producer Services
    
    
    
    
    
    
    9,192
    
    
    
    
    
    
    
    9,192Segment profit
    
    $
    73,890
    
    
    $
    9,519
    
    
    $
    4,034
    
    
    $
    87,443Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    78,251General and administrative expenses:Allocated  affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,343
    )Third party  direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,114
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    65,794
 
 *
    
    Restated as discussed in Note 1. 17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Please read the following discussion of our financial condition and results of operations in
conjunction with the consolidated financial statements included in Item 1 of Part I of this
quarterly report.
 Overview
  
    
    Gathering and Processing  West.Our West segment includes Four Corners. The Four
Corners system gathers and processes or treats approximately 37% of the natural gas
produced in the San Juan Basin and connects with the five pipeline systems that transport
natural gas to end markets from the basin.
    
    Gathering and Processing  Gulf.Our Gulf segment includes (1) our 60% ownership
interest in Discovery and (2) the Carbonate Trend gathering pipeline off the coast of
Alabama. Discovery owns an integrated natural gas gathering and transportation pipeline
system extending from offshore in the Gulf of Mexico to a natural gas processing facility
and an NGL fractionator in Louisiana. These assets generate revenues by providing natural
gas gathering, transporting and processing services and integrated NGL fractionating
services to customers under a range of contractual arrangements. Although Discovery
includes fractionation operations, which would normally fall within the NGL Services
segment, it is primarily engaged in gathering and processing and is managed as such.
    
    NGL Services.Our NGL Services segment includes three integrated NGL storage
facilities and a 50% undivided interest in a fractionator near Conway, Kansas. These
assets generate revenues by providing stand-alone NGL fractionation and storage services
using various fee-based contractual arrangements where we receive a fee or fees based on
actual or contracted volumetric measures.
 Executive Summary
  Recent Events
 Conversion of Class B Units
 Additional Investment in Discovery. , .
 18




---



##### Table of Contents



Results of Operations
 Consolidated Overview
  Three months ended
    
    
    % Change
    
    
    Six months ended
    
    
    % ChangeJune 30,
    
    
    from
    
    
    June 30,
    
    
    from2007
    
    
    2006
    
    
    2006(1)
    
    
    2007
    
    
    2006
    
    
    2006(1)(Thousands)
    
    
    
    
    
    
    (Thousands)Revenues
    
    $
    139,269
    
    
    $
    141,186
    
    
    
    -1
    %
    
    $
    273,084
    
    
    $
    273,921
    
    
    
    Costs and expenses:Product cost and shrink
replacement
    
    
    44,677
    
    
    
    44,719
    
    
    
    
    
    
    
    86,872
    
    
    
    88,719
    
    
    
    +2
    %Operating and maintenance
expense
    
    
    34,243
    
    
    
    41,568
    
    
    
    +18
    %
    
    
    76,756
    
    
    
    78,354
    
    
    
    +2
    %Depreciation,
amortization and
accretion
    
    
    11,234
    
    
    
    10,852
    
    
    
    -4
    %
    
    
    24,412
    
    
    
    21,566
    
    
    
    -13
    %General and administrative
expense
    
    
    10,833
    
    
    
    10,177
    
    
    
    -6
    %
    
    
    20,903
    
    
    
    18,763
    
    
    
    -11
    %Taxes other than income
    
    
    2,626
    
    
    
    1,757
    
    
    
    -49
    %
    
    
    4,740
    
    
    
    4,040
    
    
    
    -17
    %Other (income) expense
    
    
    198
    
    
    
    328
    
    
    
    +40
    %
    
    
    658
    
    
    
    (3,315
    )
    
    NMTotal costs and expenses
    
    
    103,811
    
    
    
    109,401
    
    
    
    +5
    %
    
    
    214,341
    
    
    
    208,127
    
    
    
    -3
    %Operating income
    
    
    35,458
    
    
    
    31,785
    
    
    
    +12
    %
    
    
    58,743
    
    
    
    65,794
    
    
    
    -11
    %Equity earnings  Discovery
    
    
    3,875
    
    
    
    3,521
    
    
    
    +10
    %
    
    
    7,806
    
    
    
    9,192
    
    
    
    -15
    %Interest expense
    
    
    (14,410
    )
    
    
    (648
    )
    
    NM


    
    
    (28,800
    )
    
    
    (884
    )
    
    NMInterest income
    
    
    1,261
    
    
    
    110
    
    
    NM


    
    
    2,244
    
    
    
    180
    
    
    NMNet income
    
    $
    26,184
    
    
    $
    34,768
    
    
    
    -25
    %
    
    $
    39,993
    
    
    $
    74,282
    
    
    
    -46
    %
 
 (1)
    
    + = Favorable Change;  = Unfavorable Change; NM = A percentage
calculation is not meaningful due to change in signs, a zero-value
denominator or a percentage change greater than 200. Three months ended June 30, 2007 vs. three months ended June 30, 2006
   19




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Six months ended June 30, 2007 vs. six months ended June 30, 2006
           20




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Results of operations  Gathering and Processing  West
  Four Corners
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Thousands)Revenues
    
    $
    125,047
    
    
    $
    127,794
    
    
    $
    245,475
    
    
    $
    243,466Costs and expenses, including interest:Product cost and shrink replacement
    
    
    42,313
    
    
    
    41,800
    
    
    
    81,988
    
    
    
    80,077Operating and maintenance expense
    
    
    29,487
    
    
    
    34,525
    
    
    
    62,584
    
    
    
    63,620Depreciation and amortization
    
    
    10,203
    
    
    
    9,952
    
    
    
    22,378
    
    
    
    19,766General and administrative expense  direct
    
    
    1,797
    
    
    
    2,361
    
    
    
    3,618
    
    
    
    5,761Taxes other than income
    
    
    2,426
    
    
    
    1,596
    
    
    
    4,350
    
    
    
    3,672Other (income) expense, net
    
    
    198
    
    
    
    323
    
    
    
    658
    
    
    
    (3,320
    )Total costs and expenses, including interest
    
    
    86,424
    
    
    
    90,557
    
    
    
    175,576
    
    
    
    169,576Segment profit
    
    $
    38,623
    
    
    $
    37,237
    
    
    $
    69,899
    
    
    $
    73,890
 Three months ended June 30, 2007 vs. three months ended June 30, 2006
      
    
    $2.9 million lower non-shrink natural gas purchases due primarily to lower system losses; and
    
    $4.1 million in lower materials and supplies and outside
services expense.
  21




---



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Six months ended June 30, 2007 vs. six months ended June 30, 2006
   
    
    $3.6 million related to a 5% increase in average NGL sales prices realized on sales of
NGLs which we received under certain processing contracts; and
    
    $1.1 million higher sales of NGLs on behalf of third party producers for whom we
purchase their NGLs for a fee under their contracts. Under these arrangements, we purchase
the NGLs from the third party producers. We subsequently sell them to an affiliate. This
increase is offset by higher associated product costs of $1.1 million discussed below.
  
    
    $2.2 million decrease in condensate sales due primarily to the absence of the $1.9
million 2006 adjustment discussed previously. Prior to 2006, condensate revenue had been
recognized two months in arrears; and
    
    $0.5 million related to a 1% decrease in NGL volumes that Four Corners received under
certain processing contracts.Product cost and shrink replacement increased $1.9 million, or 2%, due primarily to:
 
    
    $1.6 million increase from 5% higher average natural gas prices for shrink replacement;
and
    
    $1.1 million increase from third party producers who elected to have us purchase their
NGLs, which was offset by the corresponding increase in product sales discussed above.
   
    
    $5.2 million lower materials and supplies expense;
    
    $2.4 million decrease in non-shrink natural gas purchases due primarily to lower system
losses; and
 22




---



##### Table of Contents




    
    $0.9 million decrease in labor expense resulting from a first quarter 2007 incentive
compensation adjustment.
       Outlook
  
    
    We anticipate that gathered volumes in the second half of 2007 will be higher than the
first half due to improved operating conditions, sustained drilling activity, expansion
opportunities and production enhancement activities by existing customers. We anticipate
that full year 2007 gathered volumes will approximately be the same as 2006s gathered
volumes of 1,500 BBtu/d.
    
    We have realized above average margins at our gas processing plants in recent years due
primarily to increasing prices for NGLs. We expect per-unit margins in 2007 will remain
higher in relation to five-year historical averages, and potentially exceed the record
levels realized in 2006. Additionally, we anticipate that our contract mix and commodity
management activities at Four Corners will continue to allow us to realize greater margins
relative to industry benchmark averages.
    
    In May 2007, we hedged 8.8 million gallons of May through December 2007 forecasted NGL
sales using financial swap contracts with a range of fixed prices of $1.15 to $1.62 per
gallon depending on the specific product. We receive the underlying NGL gallons as
compensation for processing services provided at Four Corners. We have designated these
derivatives as cash flow hedges under Statement of Financial Accounting Standards No. 133.
    
    We anticipate that operating costs, excluding compression, will remain stable or may
decline as compared to 2006. Compression cost increases are dependent upon the extent and
amount of additional compression needed to meet the needs of our Four Corners customers and
the cost at which compression can be purchased, leased and operated.
 23




---



##### Table of Contents




    
    The right of way agreement with the Jicarilla Apache Nation, which covered certain
gathering system assets in Rio Arriba County, New Mexico, expired on December 31, 2006. We
continue to operate our assets on the Jicarilla Apache Nation in Northern New Mexico
pursuant to a special business license which extends through September 30, 2007 while we
conduct further discussions that are expected to result in the sale of the gathering assets
which are on, or are isolated by, reservation lands. This segment of Four Corners
gathering system flows less than 10% of the systems gathered volumes.
 Results of Operations  Gathering and Processing  Gulf
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Thousands)Segment revenues
    
    $
    459
    
    
    $
    676
    
    
    $
    1,020
    
    
    $
    1,409Costs and expenses:Operating and maintenance expense
    
    
    361
    
    
    
    231
    
    
    
    911
    
    
    
    473Depreciation
    
    
    303
    
    
    
    300
    
    
    
    607
    
    
    
    600General and administrative expense
- direct
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    9Total costs and expenses
    
    
    664
    
    
    
    538
    
    
    
    1,518
    
    
    
    1,082Segment operating income (loss)
    
    
    (205
    )
    
    
    138
    
    
    
    (498
    )
    
    
    327Equity earnings  Discovery (60%)
    
    
    3,875
    
    
    
    3,521
    
    
    
    7,806
    
    
    
    9,192Segment profit
    
    $
    3,670
    
    
    $
    3,659
    
    
    $
    7,308
    
    
    $
    9,519
 Carbonate Trend
  24




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Discovery Producer Services  100 %
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Thousands)Revenues
    
    $
    63,504
    
    
    $
    32,916
    
    
    $
    115,985
    
    
    $
    95,036Costs and expenses, including interest:Product cost and shrink replacement
    
    
    39,889
    
    
    
    15,898
    
    
    
    73,407
    
    
    
    57,448Operating and maintenance expense
    
    
    9,099
    
    
    
    5,232
    
    
    
    15,514
    
    
    
    10,054Depreciation and accretion
    
    
    6,508
    
    
    
    6,374
    
    
    
    12,991
    
    
    
    12,753General and administrative expense
    
    
    579
    
    
    
    544
    
    
    
    1,123
    
    
    
    1,234Interest income
    
    
    (422
    )
    
    
    (601
    )
    
    
    (1,083
    )
    
    
    (1,227
    )Other (income) expense, net
    
    
    1,391
    
    
    
    (399
    )
    
    
    1,022
    
    
    
    (546
    )Total costs and expenses, including interest
    
    
    57,044
    
    
    
    27,048
    
    
    
    102,974
    
    
    
    79,716Net income
    
    $
    6,460
    
    
    $
    5,868
    
    
    $
    13,011
    
    
    $
    15,320Williams Partners 60% interest  Equity
earnings per our Consolidated Statements of
Income
    
    $
    3,875
    
    
    $
    3,521
    
    
    $
    7,806
    
    
    $
    9,192
 Three months ended June 30, 2007 vs. three months ended June 30, 2006
  
    
    Product sales increased $30.6 million, due primarily to a $14.9 million increase in NGL
sales related to third-party processing customers elections to have Discovery purchase
their NGLs under an option in their contracts, $12.1 million from higher NGL volumes sold
which Discovery received under certain processing contracts and $3.0 million related to
higher NGL prices Discovery received for these NGLs. In addition, sales of excess fuel and
shrink replacement gas increased $0.6 million. See below for the related changes in product
cost and shrink replacement for each of these product sales increases.
    
    Transportation revenues increased $0.4 million due primarily to $3.4 million from higher
transportation volumes, partially offset by $3.0 million from lower average transportation
rates.
    
    Fee-based processing and fractionation revenues increased $0.2 million due primarily to
$0.5 million from higher fractionated volumes in 2007, partially offset by $0.2 million
from lower processed volumes.
    25




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##### Table of Contents



Six months ended June 30, 2007 vs. Six months ended June 30, 2006
  
    
    Product sales increased $29.8 million, primarily due to $22.8 million from higher NGL
volumes sold under certain processing contracts, including the TETCO agreement, $4.3
million from higher average NGL prices received for these NGLs and $2.6 million from
higher sales of excess fuel and shrink replacement gas. See below for the related changes
in product cost and shrink replacement for each of these product sales increases.
    
    Fee-based processing and fractionation revenues decreased $5.8 million due primarily to
$5.1 million in reduced fee-based revenues related to processing the TGP and TETCO open
seasons volumes discussed above. In 2006 the open season agreements included fee-based
processing and fractionation. Our current agreement with TETCO includes processing services
based on a percent-of-liquids contract, where the NGLs we take as compensation are
reflected in the higher product sales discussed above.
    
    Transportation revenues decreased $1.9 million, including $3.3 million in reduced
fee-based revenues related to the absence of TGP and TETCO open season agreements discussed
above. These decreases were partially offset by increases from new agreements.
     26




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##### Table of Contents



Outlook
 Discovery
  
    
    The Tahiti pipeline lateral expansion project is currently on schedule. The pipeline was
installed on the sea bed in February. Chevron had scheduled initial throughput to begin in
mid-2008, but recently announced that it will face delays because of
metallurgical problems discovered in the facilitys mooring
shackles. Discoverys revenues from the
Tahiti project are dependent on receiving throughput from Chevron. Therefore, delays
Chevron experiences in bringing their production online will impact the initial timing of
revenues for Discovery. The significance of these delays on Discoverys future results
cannot be reasonably estimated due to uncertainty regarding the length of the delays.
    
    Effective June 1, 2007, Discovery amended the 100BBtu/d contract with TETCO to increase
the volume to 200BBtu/d through October 31, 2007. At the conclusion of this agreement, we
expect continued throughput of about 150 BBtu/d through the first quarter of 2008 at which
time we expect no further volumes under this agreement. Current flowing volumes are
approximately 250 BBtu/d.
    
    With the current oil and natural gas price environment, drilling activity across the
shelf and the deepwater of the Gulf of Mexico has been robust. However, the limited
availability of specialized rigs necessary to drill in the deepwater areas, such as those
in and around Discoverys gathering areas, limits the ability of producers to bring
identified reserves to market quickly. This will prolong the timeframe over which these
reserves will be developed. We expect Discovery to be successful in competing for a portion
of these new volumes.
    
    We anticipate that ATP Oil & Gas Corporation will complete modifications to their Gomez
facility in early August 2007, which will increase the volumes to approximately 75 BBtu/d.
    
    In May 2007, Energy Partners LTD brought on an additional well and is currently
flowing approximately 50 BBtu/d.
 27




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##### Table of Contents



Results of Operations  NGL Services
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Thousands)Segment revenues
    
    $
    13,763
    
    
    $
    12,716
    
    
    $
    26,589
    
    
    $
    29,046Costs and expenses:Operating and maintenance expense
    
    
    4,395
    
    
    
    6,812
    
    
    
    13,261
    
    
    
    14,261Product cost
    
    
    2,364
    
    
    
    2,919
    
    
    
    4,884
    
    
    
    8,642Depreciation and accretion
    
    
    728
    
    
    
    600
    
    
    
    1,427
    
    
    
    1,200General and administrative expense  direct
    
    
    470
    
    
    
    235
    
    
    
    968
    
    
    
    536Other expense, net
    
    
    200
    
    
    
    166
    
    
    
    390
    
    
    
    373Total costs and expenses
    
    
    8,157
    
    
    
    10,732
    
    
    
    20,930
    
    
    
    25,012Segment profit
    
    $
    5,606
    
    
    $
    1,984
    
    
    $
    5,659
    
    
    $
    4,034
 Three months ended June 30, 2007 vs. three months ended June 30, 2006
  
    
    Storage revenues increased $0.9 million due primarily to higher average storage rates.
    
    Low sulfur natural gasoline upgrade fees increased $0.8 million. This upgrade service
began in late 2006.
    
    Product sales decreased $0.6 million due to lower sales volumes. This decrease was
offset by the related decrease in product cost discussed below.
    
    Fractionation revenues decreased $0.4 million due primarily to 8% lower fractionation
volumes and 17% lower rates. The lower fractionation rates relate to the pass through to
customers of decreased fuel and power costs.
    Six months ended June 30, 2007 vs. six months ended June 30, 2006
  28




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##### Table of Contents




    
    Product sales decreased $4.0 million due to lower sales volumes. This decrease was
offset by the related decrease in product cost discussed below.
    
    Fractionation revenues decreased $2.4 million due primarily to 27% lower fractionation
volumes and 20% lower rates. Fractionation throughput was lower during 2007 due to a
customers decision to fractionate a percentage of their volumes outside of the
Mid-Continent region. This decision was based on current prices being paid for fractionated
products outside of the Mid-Continent region. The lower fractionation rates relate to the
pass through to customers of decreased fuel and power costs.
    
    Storage revenues increased $2.2 million due primarily to more contracted storage for the
first three months of 2007 compared to the first three months of 2006 and higher storage
rates for all of 2007.
    
    Low sulfur natural gasoline upgrade fees increased $1.3 million. This upgrade service
began in late 2006.
    Outlook
 
    
    Conways primary storage lease renewal period closed March 31, 2007. Based on the first
quarter of the 2007 storage year, we expect 2007 storage revenues may exceed 2006 levels
due to strong demand for propane and butane storage as well as higher priced specialty
storage services.
    
    We continue to execute a large number of storage cavern workovers and wellhead
modifications to comply with KDHE regulatory requirements. We expect outside service costs
to continue at current levels throughout 2007 and 2008 to ensure that we meet the
regulatory compliance requirement to complete cavern wellhead modifications before the end
of 2008. Our forecast for 2007 is to workover approximately 60 caverns (both complete and
partial) compared to 51 cavern workovers (38 complete and 13 partial) in 2006. Through June
30, 2007 we completed 20 workovers with another 29 caverns out of service for workovers.
 29




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##### Table of Contents



Financial Condition and Liquidity
  
    
    Cash and cash equivalents on hand;
    
    Cash generated from operations, including cash distributions from Discovery;
    
    Insurance or other recoveries related to the Carbonate Trend overburden restoration,
which should be received, approximately, as costs are incurred;
    
    Capital contributions from Williams pursuant to the omnibus agreement; and
    
    Credit facilities, as needed.
  
    
    Maintenance capital expenditures for our Four Corners and Conway assets;
    
    Expansion capital expenditures for our Four Corners assets;
    
    Carbonate Trend overburden restoration;
    
    Interest on our long-term debt; and
    
    Quarterly distributions to our unitholders.
 Discovery
  Total Distribution toDate of Distribution
    
    Members
    
    Our 40% Share**1/30/07
    
    $  9,000
    
    $  3,6004/30/07
    
    16,000
    
    6,4006/22/07*
    
    11,173
    
    4,4697/30/07
    
    9,000
    
    3,600
 
 *
    
    Special distribution Discovery made after receipt of insurance proceeds.**
    
    On June 28, 2007,we closed on the acquisition of an additional 20% limited liability company
interest in Discovery. Because this additional acquisition was effective July 1, 2007, we will not
begin to receive 60% of Discoverys distributions until October 2007.   30




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##### Table of Contents



Capital Contributions from Williams
  
    
    Indemnification of environmental and related expenditures, less any related insurance
recoveries, for a period of three years (for certain of those expenditures) up to a cap of
$14.0 million. Amounts expected to be incurred in 2007 related to these indemnifications
are as follows:
 Ø
    
    approximately $3.2 million for capital expenditures related to
KDHE-related cavern compliance at our Conway storage facilities;
and
 Ø
    
    approximately $1.2 million for our initial 40% share of
Discoverys costs for marshland restoration and repair or
replacement of Paradis emission-control flare.
 
    
    An annual credit for general and administrative expenses of $2.4 million in 2007, $1.6
million in 2008 and $0.8 million in 2009.
    
    Up to $3.4 million to fund our initial 40% share of the expected total cost of
Discoverys Tahiti pipeline lateral expansion project in excess of the $24.4 million we
contributed during September 2005. As of June 30, 2007 we have received $1.6 million from
Williams for this indemnification.
    Credit Facilities
   Capital Expenditures
  
    
    Maintenance capital expenditures, which are capital expenditures made to replace
partially or fully depreciated assets in order to maintain the existing operating capacity
of our assets and to extend their useful lives; and
 31




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##### Table of Contents




    
    Expansion capital expenditures such as those to acquire additional assets to grow our
business, to expand and upgrade plant or pipeline capacity and to construct new plants,
pipelines and storage facilities.
  Maintenance
    
    Expansion
    
    TotalTotal Year
    
    Through
    
    Total Year
    
    Through
    
    Total Year
    
    ThroughCompany
    
    Estimate
    
    June 30, 2007
    
    Estimate
    
    June 30, 2007
    
    Estimate
    
    June 30, 2007Conway
    
    $
    10.0
    
    
    $
    4.2
    
    
    $
    5.0
    
    
    $
    0.2
    
    
    $
    15.0
    
    
    $
    4.4Four Corners
    
    
    24.0
    
    
    
    14.1
    
    
    
    15.0
    
    
    
    3.2
    
    
    
    39.0
    
    
    
    17.3Discovery  100%
    
    
    6.0
    
    
    
    1.0
    
    
    
    36.0
    
    
    
    30.5
    
    
    
    42.0
    
    
    
    31.5
       32




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##### Table of Contents



Carbonate Trend Overburden Restoration
  Debt Service  Long-Term Debt
   Cash Distributions to Unitholders
   Results of Operations  Cash Flows
 Williams Partners L.P.
 Six months endedJune 30,2007
    
    2006(Thousands)Net cash provided by operating activities
    
    $
    98,043
    
    
    $
    73,496Net cash used by investing activities
    
    $
    (86,911
    )
    
    $
    (166,454
    )Net cash provided (used) by financing activities
    
    $
    (47,829
    )
    
    $
    117,659
  33




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##### Table of Contents



Discovery  100 %
 Six months endedJune 30,2007
    
    2006(Thousands)Net cash provided by operating activities
    
    $
    26,139
    
    
    $
    31,273Net cash used by investing activities
    
    
    (5,137
    )
    
    
    (9,047
    )Net cash used by financing activities
    
    
    (32,252
    )
    
    
    (15,215
    )
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Price Risk
  34




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##### Table of Contents



Derivatives
  Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Second-Quarter 2007 Changes in Internal Control Over Financial Reporting
  35




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  For
    
    Against
    
    Abstain
    
    Broker Non-Votes12,139,907
    
    136,115
    
    2,612,928
    
    0
 36




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##### Table of Contents



Item 6. Exhibits
  ExhibitNumber
    
    Description*#Exhibit 2.1
    
    Purchase and Sale Agreement, dated June 20, 2007, by and among Williams Energy,
L.L.C., Williams Energy Services, LLC, and Williams Partners Operating LLC
(attached as Exhibit 2.1 to Williams Partners L.P.s current report on Form 8-K
(File No. 001-32599) filed with the SEC on June 25, 2007).*Exhibit 10.1
    
    Amendment Agreement, dated May 9, 2007, among The Williams Companies, Inc.,
Williams Partners L.P., Northwest Pipeline Corporation, Transcontinental Gas Pipe
Line Corporation, certain banks, financial institutions and other institutional
lenders and Citibank, N.A., as administrative agent (incorporated by reference to
Exhibit 10.1 to The Williams Companies, Inc.s current report on Form 8-K (File
No. 001-04174) filed with the SEC on May 15, 2007).Exhibit 31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.Exhibit 31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.Exhibit 32
    
    Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
 
 *
    
    Such exhibit has heretofore been filed with the SEC as part of the
filing indicated and is incorporated herein by reference.#
    
    Pursuant to item 601(b) (2) of Regulation S-K, the registrant
agrees to furnish supplementally a copy of any omitted exhibit or
schedule to the SEC upon request. 37




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##### Table of Contents



SIGNATURES
  WILLIAMS PARTNERS L.P.
     (Registrant)By: Williams Partners GP LLC, its general partner/s/ Ted T. TimmermansTed. T. TimmermansController (Duly Authorized Officer and Principal Accounting Officer)
  38




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description*#Exhibit 2.1
    
    Purchase and Sale Agreement, dated June 20, 2007, by and among Williams Energy,
L.L.C., Williams Energy Services, LLC, and Williams Partners Operating LLC
(attached as Exhibit 2.1 to Williams Partners L.P.s current report on Form 8-K
(File No. 001-32599) filed with the SEC on June 25, 2007).*Exhibit 10.1
    
    Amendment Agreement, dated May 9, 2007, among The Williams Companies, Inc.,
Williams Partners L.P., Northwest Pipeline Corporation, Transcontinental Gas Pipe
Line Corporation, certain banks, financial institutions and other institutional
lenders and Citibank, N.A., as administrative agent (incorporated by reference to
Exhibit 10.1 to The Williams Companies, Inc.s current report on Form 8-K (File
No. 001-04174) filed with the SEC on May 15, 2007).Exhibit 31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.Exhibit 31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.Exhibit 32
    
    Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
 
 *
    
    Such exhibit has heretofore been filed with the SEC as part of the
filing indicated and is incorporated herein by reference.#
    
    Pursuant to item 601(b) (2) of Regulation S-K, the registrant
agrees to furnish supplementally a copy of any omitted exhibit or
schedule to the SEC upon request. 39