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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, 2006
 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 CENTER
TULSA, OKLAHOMA
    
    74172-0172(Address of principal executive offices)
    
    (Zip Code)
 
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 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, 2006 and 2005
    
    
    3Consolidated Balance Sheets  June 30, 2006 and December 31, 2005
    
    
    4Consolidated Statements of Cash Flows  Six Months Ended June 30, 2006 and 2005
    
    
    5Consolidated Statement of Partners Capital from January 1, 2006 to June 30, 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35Part II. Other InformationItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    47Amended and Restated Agreement of Limited PartnershipAmendment No. 1 to Third Amended and Restated Limited Liability Company AgreementAmended and Restated Working Capital Loan AgreementRule 13a-14(a)/15d-14(a) Certification of Chief Executive OfficerRule 13a-14(a)/15d-14(a) Certification of Chief Financial OfficerCertification Pursuant to Section 906
  FORWARD-LOOKING STATEMENTS
    
    
    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.
 1




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
    
    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 indenture and by our leverage.
    
    Williams credit agreement 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.
    
    Our partnership agreement limits our general partners fiduciary duties to our
unitholders and restricts the remedies available to unitholders for actions taken by our
general partner that might otherwise constitute breaches of fiduciary duty.
    
    Even if unitholders are dissatisfied, they cannot currently remove our general partner without its consent.
    
    You 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 30,2006
    
    
    2005*
    
    
    2006
    
    
    2005*Revenues:Storage
    
    $
    5,924
    
    
    $
    4,638
    
    
    $
    11,029
    
    
    $
    9,026Fractionation
    
    
    2,989
    
    
    
    2,307
    
    
    
    6,942
    
    
    
    4,737Gathering
    
    
    676
    
    
    
    766
    
    
    
    1,409
    
    
    
    1,646Product sales:Affiliate
    
    
    2,902
    
    
    
    3,679
    
    
    
    9,043
    
    
    
    6,508Third-party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Other
    
    
    901
    
    
    
    786
    
    
    
    2,032
    
    
    
    1,565Total revenues
    
    
    13,392
    
    
    
    12,176
    
    
    
    30,455
    
    
    
    23,545Costs and expenses:Operating and maintenance expense (excluding depreciation):Affiliate
    
    
    3,383
    
    
    
    2,693
    
    
    
    7,383
    
    
    
    5,346Third-party
    
    
    3,660
    
    
    
    99
    
    
    
    7,351
    
    
    
    3,174Product cost
    
    
    2,919
    
    
    
    3,327
    
    
    
    8,642
    
    
    
    6,062Depreciation and accretion
    
    
    900
    
    
    
    893
    
    
    
    1,800
    
    
    
    1,798General and administrative expense:Affiliate
    
    
    1,526
    
    
    
    851
    
    
    
    2,941
    
    
    
    1,538Third-party
    
    
    595
    
    
    
    27
    
    
    
    1,128
    
    
    
    46Taxes other than income
    
    
    161
    
    
    
    146
    
    
    
    368
    
    
    
    338Other expense
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Total costs and expenses
    
    
    13,149
    
    
    
    8,036
    
    
    
    29,618
    
    
    
    18,302Operating income
    
    
    243
    
    
    
    4,140
    
    
    
    837
    
    
    
    5,243Equity earnings
    
    
    10,264
    
    
    
    7,422
    
    
    
    22,432
    
    
    
    16,133Interest expense:Affiliate
    
    
    (15
    )
    
    
    (2,812
    )
    
    
    (30
    )
    
    
    (5,617
    )Third-party
    
    
    (633
    )
    
    
    (170
    )
    
    
    (854
    )
    
    
    (369
    )Interest income
    
    
    110
    
    
    
    
    
    
    
    180
    
    
    
    Net income
    
    $
    9,969
    
    
    $
    8,580
    
    
    $
    22,565
    
    
    $
    15,390Allocation of 2006 net income:Limited partners interest
    
    $
    3,795
    
    
    
    
    
    
    $
    8,693General partners interest
    
    
    (825
    )
    
    
    
    
    
    
    (1,514
    )Portion applicable to partners interest
    
    
    2,970
    
    
    
    
    
    
    
    7,179Pre-June 20,
2006 Four Corners equity earnings applicable to general partner
interest
    
    
    6,999
    
    
    
    
    
    
    
    15,386Net income
    
    $
    9,969
    
    
    
    
    
    
    $
    22,565Basic and diluted net income per limited partner unit:Common units
    
    $
    0.25
    
    
    
    
    
    
    $
    0.60Subordinated units
    
    
    0.25
    
    
    
    
    
    
    
    0.60Weighted average number of units outstanding:Common units
    
    
    7,923,619
    
    
    
    
    
    
    
    7,467,417Subordinated units
    
    
    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 31,2006
    
    
    2005*(Thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,499
    
    
    $
    6,839Accounts receivable:Trade
    
    
    1,060
    
    
    
    1,840Other
    
    
    3,815
    
    
    
    2,104Gas purchase contract  affiliate
    
    
    5,021
    
    
    
    5,320Product imbalance
    
    
    1,563
    
    
    
    760Prepaid expense
    
    
    1,677
    
    
    
    1,133Other current assets
    
    
    628
    
    
    
    Total current assets
    
    
    41,263
    
    
    
    17,996Investment in Williams Four Corners
    
    
    156,544
    
    
    
    152,003Investment in Discovery Producer Services
    
    
    148,388
    
    
    
    150,260Property, plant and equipment, net
    
    
    68,436
    
    
    
    67,931Gas purchase contract  noncurrent  affiliate
    
    
    2,377
    
    
    
    4,754Other
    
    
    2,534
    
    
    
    Total assets
    
    $
    419,542
    
    
    $
    392,944LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable:Trade
    
    $
    5,477
    
    
    $
    3,906Affiliate
    
    
    3,197
    
    
    
    4,729Deferred revenue
    
    
    7,036
    
    
    
    3,552Accrued liabilities
    
    
    2,385
    
    
    
    2,373Total current liabilities
    
    
    18,095
    
    
    
    14,560Long-term debt
    
    
    150,000
    
    
    
    Environmental remediation liabilities
    
    
    3,964
    
    
    
    3,964Other noncurrent liabilities
    
    
    766
    
    
    
    762Commitments and contingent liabilities (Note 7)Partners capital
    
    
    246,717
    
    
    
    373,658Total liabilities and partners capital
    
    $
    419,542
    
    
    $
    392,944
 
 *
    
    Restated as discussed in Note 1.  4




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WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months EndedJune 30,2006
    
    
    2005*(Thousands)OPERATING ACTIVITIES:Net income
    
    $
    22,565
    
    
    $
    15,390Adjustments to reconcile to cash provided by operations:Depreciation and accretion
    
    
    1,800
    
    
    
    1,798Amortization of gas purchase contract  affiliate
    
    
    2,676
    
    
    
    Distributions in excess of/(undistributed) equity earnings of:Discovery Producer Services
    
    
    1,872
    
    
    
    (2,903
    )Williams Four Corners
    
    
    (16,304
    )
    
    
    (13,230
    )Cash provided (used) by changes in assets and liabilities:Accounts receivable
    
    
    (930
    )
    
    
    (265
    )Prepaid expense
    
    
    (544
    )
    
    
    (422
    )Accounts payable
    
    
    16
    
    
    
    (1,476
    )Accrued liabilities
    
    
    (6
    )
    
    
    (492
    )Deferred revenue
    
    
    3,484
    
    
    
    4,118Other, including changes in non-current liabilities
    
    
    (605
    )
    
    
    1,159Net cash provided by operating activities
    
    
    14,024
    
    
    
    3,677INVESTING ACTIVITIES:Purchase of equity investment
    
    
    (155,627
    )
    
    
    Capital expenditures
    
    
    (2,259
    )
    
    
    (679
    )Net cash used by investing activities
    
    
    (157,886
    )
    
    
    (679
    )FINANCING ACTIVITIES:Proceeds from sale of common units
    
    
    227,107
    
    
    
    Proceeds from debt issuance
    
    
    150,000
    
    
    
    Excess purchase price over contributed basis of equity
investment
    
    
    (204,373
    )
    
    
    Distributions paid
    
    
    (10,433
    )
    
    
    Payment of debt issuance costs
    
    
    (3,188
    )
    
    
    Payment of offering costs
    
    
    (1,863
    )
    
    
    General partner contributions
    
    
    4,841
    
    
    
    Contributions per omnibus agreement
    
    
    2,431
    
    
    
    Changes in advances from affiliates  net
    
    
    
    
    
    
    (2,998
    )Net cash provided (used) by financing activities
    
    
    164,522
    
    
    
    (2,998
    )Increase in cash and cash equivalents
    
    
    20,660
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    6,839
    
    
    
    Cash and cash equivalents at end of period
    
    $
    27,499
    
    
    $
    
 
 *
    
    Restated as discussed in Note 1.  5




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WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
 (Unaudited)
 TotalLimited Partners
    
    
    General
    
    
    PartnersCommon
    
    
    Subordinated
    
    
    Partner
    
    
    Capital(Thousands)Balance  January 1, 2006*
    
    $
    108,526
    
    
    $
    108,491
    
    
    $
    156,641
    
    
    $
    373,658Net income
    
    
    4,487
    
    
    
    4,206
    
    
    
    13,872
    
    
    
    22,565Cash distributions
    
    
    (5,114
    )
    
    
    (5,110
    )
    
    
    (209
    )
    
    
    (10,433
    )Contributions pursuant to the omnibus agreement
    
    
    
    
    
    
    
    
    
    
    2,431
    
    
    
    2,431Issuance of units to public
(7,590,000 common units)
    
    
    227,107
    
    
    
    
    
    
    
    
    
    
    
    227,107Contributions from general partner
    
    
    
    
    
    
    
    
    
    
    4,841
    
    
    
    4,841Distribution to general partner in exchange for
interest in Williams Four Corners
    
    
    
    
    
    
    
    
    
    
    (360,000
    )
    
    
    (360,000
    )Adjustment in basis of investment in Williams
Four Corners
    
    
    
    
    
    
    
    
    
    
    (11,763
    )
    
    
    (11,763
    )Offering costs
    
    
    (1,863
    )
    
    
    
    
    
    
    
    
    
    
    (1,863
    )Other
    
    
    174
    
    
    
    
    
    
    
    
    
    
    
    174Balance  June 30, 2006
    
    $
    333,317
    
    
    $
    107,587
    
    
    $
    (194,187
    )
    
    $
    246,717
 
 *
    
    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. Acquisition of Four Corners
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Thousands)Equity earnings:Without Four Corners
    
    $
    2,347
    
    
    $
    691
    
    
    $
    6,128
    
    
    $
    2,903Four Corners
    
    
    7,917
    
    
    
    6,731
    
    
    
    16,304
    
    
    
    13,230Combined equity earnings
    
    $
    10,264
    
    
    $
    7,422
    
    
    $
    22,432
    
    
    $
    16,133Net income:Without Four Corners
    
    $
    2,052
    
    
    $
    1,849
    
    
    $
    6,261
    
    
    $
    2,160Four Corners
    
    
    7,917
    
    
    
    6,731
    
    
    
    16,304
    
    
    
    13,230Combined net income
    
    $
    9,969
    
    
    $
    8,580
    
    
    $
    22,565
    
    
    $
    15,390
 8




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Note 4. Allocation of Net Income and Distributions
  Three months
    
    
    Six monthsended
    
    
    endedJune 30, 2006
    
    
    June 30, 2006Allocation to general partner:Net income
    
    $
    9,969
    
    
    $
    22,565Charges direct to general partner:Reimbursable general and administrative costs
    
    
    798
    
    
    
    1,587Core drilling indemnified costs
    
    
    105
    
    
    
    105Total charges direct to general partner
    
    
    903
    
    
    
    1,692Pre-June 20, 2006 Four Corners equity earnings applicable
to general partner interest
    
    
    (6,999
    )
    
    
    (15,386
    )Income before direct charges to general partner and
Four Corners equity earnings applicable to general partner interest
    
    
    3,873
    
    
    
    8,871General partners share of net income
    
    
    2.0
    %
    
    
    2.0
    %General partners allocated share of net income before
direct charges and Four Corners equity earnings applicable to general partner interest
    
    
    78
    
    
    
    178Direct charges to general partner
    
    
    (903
    )
    
    
    (1,692
    )Total general partners interest
    
    
    (825
    )
    
    
    (1,514
    )Pre-June 20,
2006 Four Corners equity earnings applicable to general partner
interest
    
    
    6,999
    
    
    
    15,386Net income allocated to general partner
    
    $
    6,174
    
    
    $
    13,872Net income
    
    $
    9,969
    
    
    $
    22,565Net income allocated to general partner
    
    
    6,174
    
    
    
    13,872Net income allocated to limited partners
    
    $
    3,795
    
    
    $
    8,693
   Per Unit
    
    
    Common
    
    
    Subordinated
    
    
    General
    
    
    Total CashPayment Date
    
    Distribution
    
    
    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
    
    
    $
    6,203
    
    
    $
    2,975
    
    
    $
    263
    
    
    $
    9,441
 
 (a)
    
    The board of directors of our general partner declared this cash distribution on July
27, 2006 to be paid on August 14, 2006 to unitholders of record at the close of business on
August 7, 2006. 9




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Note 5. Equity Investments
   Williams Four Corners LLC
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)Current assets
    
    $
    35,757
    
    
    $
    18,832Non-current assets
    
    
    24,423
    
    
    
    25,228Property, plant and equipment
    
    
    582,613
    
    
    
    591,034Current liabilities
    
    
    (17,992
    )
    
    
    (27,978
    )Non-current liabilities
    
    
    (1,118
    )
    
    
    (1,526
    )Owners equity
    
    $
    623,683
    
    
    $
    605,590
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)Revenues
    
    $
    127,794
    
    
    $
    108,080
    
    
    $
    243,466
    
    
    $
    215,983Costs and expenses
    
    
    96,252
    
    
    
    81,265
    
    
    
    178,509
    
    
    
    163,273Net income
    
    $
    31,542
    
    
    $
    26,815
    
    
    $
    64,957
    
    
    $
    52,710
 Discovery Producer Services LLC
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)Current assets
    
    $
    48,974
    
    
    $
    70,525Non-current restricted cash and cash equivalents
    
    
    32,509
    
    
    
    44,559Property, plant and equipment
    
    
    354,300
    
    
    
    344,743Current liabilities
    
    
    (20,870
    )
    
    
    (45,070
    )Non-current liabilities
    
    
    (1,172
    )
    
    
    (1,121
    )Members capital
    
    $
    413,741
    
    
    $
    413,636
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)Revenues
    
    $
    32,916
    
    
    $
    23,025
    
    
    $
    95,036
    
    
    $
    50,314Costs and expenses
    
    
    27,649
    
    
    
    21,687
    
    
    
    80,943
    
    
    
    43,729Interest income
    
    
    (601
    )
    
    
    (389
    )
    
    
    (1,227
    )
    
    
    (673
    )Net income
    
    $
    5,868
    
    
    $
    1,727
    
    
    $
    15,320
    
    
    $
    7,258
 10




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Note
6. Credit Facilities and Long-Term Debt
         Note 7. Commitments and Contingencies
 Environmental Matters.
   Other.
 11




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Note 8. Segment Disclosures
  Gathering &
    
    
    NGLProcessing
    
    
    Services
    
    
    Total(Thousands)Three Months Ended June 30, 2006:Segment revenues
    
    $
    676
    
    
    $
    12,716
    
    
    $
    13,392Operating and maintenance expense
    
    
    231
    
    
    
    6,812
    
    
    
    7,043Product cost
    
    
    
    
    
    
    2,919
    
    
    
    2,919Depreciation and accretion
    
    
    300
    
    
    
    600
    
    
    
    900Direct general and administrative expense
    
    
    7
    
    
    
    235
    
    
    
    242Taxes other than income
    
    
    
    
    
    
    161
    
    
    
    161Other expense
    
    
    
    
    
    
    5
    
    
    
    5Segment operating income
    
    
    138
    
    
    
    1,984
    
    
    
    2,122Equity earnings
    
    
    10,264
    
    
    
    
    
    
    
    10,264Segment profit
    
    $
    10,402
    
    
    $
    1,984
    
    
    $
    12,386Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    $
    2,122General and administrative expenses:Allocated-affiliate
    
    
    
    
    
    
    
    
    
    
    (1,293
    )Third party-direct
    
    
    
    
    
    
    
    
    
    
    (586
    )Combined operating income
    
    
    
    
    
    
    
    
    
    $
    243Three Months Ended June 30, 2005:Segment revenues
    
    $
    765
    
    
    $
    11,411
    
    
    $
    12,176Operating and maintenance expense
    
    
    269
    
    
    
    2,523
    
    
    
    2,792Product cost
    
    
    
    
    
    
    3,327
    
    
    
    3,327Depreciation and accretion
    
    
    300
    
    
    
    593
    
    
    
    893Direct general and administrative expense
    
    
    
    
    
    
    271
    
    
    
    271Taxes other than income
    
    
    
    
    
    
    146
    
    
    
    146Segment operating income
    
    
    196
    
    
    
    4,551
    
    
    
    4,747Equity earnings
    
    
    7,422
    
    
    
    
    
    
    
    7,422Segment profit
    
    $
    7,618
    
    
    $
    4,551
    
    
    $
    12,169Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    $
    4,747Allocated general and administrative expense
    
    
    
    
    
    
    
    
    
    
    (607
    )Combined operating income
    
    
    
    
    
    
    
    
    
    $
    4,140
 12




---



##### Table of Contents



Gathering &
    
    
    NGLProcessing
    
    
    Services
    
    
    Total(Thousands)Six Months Ended June 30, 2006:Segment revenues
    
    $
    1,409
    
    
    $
    29,046
    
    
    $
    30,455Operating and maintenance expense
    
    
    473
    
    
    
    14,261
    
    
    
    14,734Product cost
    
    
    
    
    
    
    8,642
    
    
    
    8,642Depreciation and accretion
    
    
    600
    
    
    
    1,200
    
    
    
    1,800Direct general and administrative expense
    
    
    9
    
    
    
    536
    
    
    
    545Taxes other than income
    
    
    
    
    
    
    368
    
    
    
    368Other expense
    
    
    
    
    
    
    5
    
    
    
    5Segment operating income
    
    
    327
    
    
    
    4,034
    
    
    
    4,361Equity earnings
    
    
    22,432
    
    
    
    
    
    
    
    22,432Segment profit
    
    $
    22,759
    
    
    $
    4,034
    
    
    $
    26,793Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    $
    4,361General and administrative expenses:Allocated-affiliate
    
    
    
    
    
    
    
    
    
    
    (2,410
    )Third party-direct
    
    
    
    
    
    
    
    
    
    
    (1,114
    )Combined operating income
    
    
    
    
    
    
    
    
    
    $
    837Segment assets
    
    $
    335,632
    
    
    $
    67,211
    
    
    $
    402,843Other assets and eliminations
    
    
    
    
    
    
    
    
    
    
    16,699Total assets
    
    
    
    
    
    
    
    
    
    $
    419,542Six Months Ended June 30, 2005:Segment revenues
    
    $
    1,645
    
    
    $
    21,900
    
    
    $
    23,545Operating and maintenance expense
    
    
    376
    
    
    
    8,144
    
    
    
    8,520Product cost
    
    
    
    
    
    
    6,062
    
    
    
    6,062Depreciation and accretion
    
    
    600
    
    
    
    1,198
    
    
    
    1,798Direct general and administrative expense
    
    
    
    
    
    
    474
    
    
    
    474Taxes other than income
    
    
    
    
    
    
    338
    
    
    
    338Segment operating income
    
    
    669
    
    
    
    5,684
    
    
    
    6,353Equity earnings
    
    
    16,133
    
    
    
    
    
    
    
    16,133Segment profit
    
    $
    16,802
    
    
    $
    5,684
    
    
    $
    22,486Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    $
    6,353Allocated general and administrative expense
    
    
    
    
    
    
    
    
    
    
    (1,110
    )Combined operating income
    
    
    
    
    
    
    
    
    
    $
    5,243Total assets
    
    $
    283,190
    
    
    $
    52,703
    
    
    $
    335,893
 13




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##### Table of Contents



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.Our Gathering and Processing segment includes (1) our 25.1
percent ownership interest in Williams Four Corners LLC (Four Corners), (2) our 40
percent ownership interest in Discovery Producer Services, LLC (Discovery) and (3) the
Carbonate Trend gathering pipeline off the coast of Alabama. The Four Corners system
gathers and processes approximately 37 percent 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. 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 percent 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.
 Recent Events
 Issuance of Common Units.
 Issuance of Senior Unsecured Notes. 1 2
 Acquisition of Interest in Four Corners.
 (i)
    
    a 3,500-mile natural gas gathering system in the San Juan
Basin in New Mexico and Colorado with a capacity of two
billion cubic feet per day;(ii)
    
    the Ignacio natural gas processing plant in Colorado and
the Kutz and Lybrook natural gas processing plants in New
Mexico, which have a combined processing capacity of 760
million cubic feet per day (MMcf/d); and
 14




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##### Table of Contents



(iii)
    
    the Milagro and Esperanza natural gas treating plants in
New Mexico, which have a combined carbon dioxide treating
capacity of 750 MMcf/d.
  Future Acquisitions.
 New Credit Facility with Williams.
 15




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##### Table of Contents



Results of Operations
 Consolidated Overview
  Three months ended
    
    
    % Change
    
    
    Six months ended
    
    
    % ChangeJune 30,
    
    
    from
    
    
    June 30,
    
    
    from2006
    
    
    2005
    
    
    2005(1)
    
    
    2006
    
    
    2005
    
    
    2005(1)(Thousands)
    
    
    
    
    
    
    (Thousands)Revenues
    
    $
    13,392
    
    
    $
    12,176
    
    
    
    +10
    %
    
    $
    30,455
    
    
    $
    23,545
    
    
    
    +29
    %Costs and expenses:Operating and maintenance
expense
    
    
    7,043
    
    
    
    2,792
    
    
    
    -152
    %
    
    
    14,734
    
    
    
    8,520
    
    
    
    -73
    %Product cost
    
    
    2,919
    
    
    
    3,327
    
    
    
    +12
    %
    
    
    8,642
    
    
    
    6,062
    
    
    
    -43
    %Depreciation and accretion
    
    
    900
    
    
    
    893
    
    
    
    -1
    %
    
    
    1,800
    
    
    
    1,798
    
    
    
    General and administrative
expense
    
    
    2,121
    
    
    
    878
    
    
    
    -142
    %
    
    
    4,069
    
    
    
    1,584
    
    
    
    -157
    %Taxes other than income
    
    
    161
    
    
    
    146
    
    
    
    -10
    %
    
    
    368
    
    
    
    338
    
    
    
    -9
    %Other expense
    
    
    5
    
    
    
    
    
    
    NM
    
    
    
    5
    
    
    
    
    
    
    NMTotal costs and expenses
    
    
    13,149
    
    
    
    8,036
    
    
    
    -64
    %
    
    
    29,618
    
    
    
    18,302
    
    
    
    -62
    %Operating income
    
    
    243
    
    
    
    4,140
    
    
    
    -94
    %
    
    
    837
    
    
    
    5,243
    
    
    
    -84
    %Equity earnings  Four Corners
    
    
    7,917
    
    
    
    6,731
    
    
    
    +18
    %
    
    
    16,304
    
    
    
    13,230
    
    
    
    +23
    %Equity earnings  Discovery
    
    
    2,347
    
    
    
    691
    
    
    NM
    
    
    
    6,128
    
    
    
    2,903
    
    
    
    +111
    %Interest expense
    
    
    (648
    )
    
    
    (2,982
    )
    
    
    +78
    %
    
    
    (884
    )
    
    
    (5,986
    )
    
    
    +85
    %Interest income
    
    
    110
    
    
    
    
    
    
    NM
    
    
    
    180
    
    
    
    
    
    
    NMNet income
    
    $
    9,969
    
    
    $
    8,580
    
    
    
    +16
    %
    
    $
    22,565
    
    
    $
    15,390
    
    
    
    +47
    %
 
 (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, 2006 vs. three months ended June 30, 2005
     16




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##### Table of Contents



Six months ended June 30, 2006 vs. six months ended June 30, 2005
        17




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##### Table of Contents



Results of Operations  Gathering and Processing
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Thousands)Segment revenues
    
    $
    676
    
    
    $
    765
    
    
    $
    1,409
    
    
    $
    1,645Costs and expenses:Operating and maintenance expense
    
    
    231
    
    
    
    269
    
    
    
    473
    
    
    
    376Depreciation
    
    
    300
    
    
    
    300
    
    
    
    600
    
    
    
    600General and administrative expense
 direct
    
    
    7
    
    
    
    
    
    
    
    9
    
    
    
    Total costs and expenses
    
    
    538
    
    
    
    569
    
    
    
    1,082
    
    
    
    976Segment operating income
    
    
    138
    
    
    
    196
    
    
    
    327
    
    
    
    669Equity earnings  Four Corners
    
    
    7,917
    
    
    
    6,731
    
    
    
    16,304
    
    
    
    13,230Equity earnings  Discovery
    
    
    2,347
    
    
    
    691
    
    
    
    6,128
    
    
    
    2,903Segment profit
    
    $
    10,402
    
    
    $
    7,618
    
    
    $
    22,759
    
    
    $
    16,802
 Carbonate Trend
   18




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##### Table of Contents



Four Corners
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Thousands)Revenues
    
    $
    127,794
    
    
    $
    108,080
    
    
    $
    243,466
    
    
    $
    215,983Costs and expenses, including interest:Product cost and shrink replacement
    
    
    41,800
    
    
    
    36,418
    
    
    
    80,077
    
    
    
    72,852Operating and maintenance expense
    
    
    34,525
    
    
    
    26,735
    
    
    
    63,620
    
    
    
    52,381Depreciation and amortization
    
    
    9,952
    
    
    
    9,708
    
    
    
    19,766
    
    
    
    19,434General and administrative expense
    
    
    8,056
    
    
    
    6,529
    
    
    
    14,694
    
    
    
    14,309Taxes other than income
    
    
    1,596
    
    
    
    1,748
    
    
    
    3,672
    
    
    
    3,933Other (income) expense, net
    
    
    323
    
    
    
    127
    
    
    
    (3,320
    )
    
    
    364Total costs and expenses, including interest
    
    
    96,252
    
    
    
    81,265
    
    
    
    178,509
    
    
    
    163,273Net income
    
    $
    31,542
    
    
    $
    26,815
    
    
    $
    64,957
    
    
    $
    52,710Williams Partners 25.1 percent interest 
Equity earnings per our Consolidated
Statements of Income$
    7,917
    
    
    $
    6,731
    
    
    $
    16,304
    
    
    $
    13,230
 Three months ended June 30, 2006 vs. three months ended June 30, 2005
  
    
    $9.1 million increase related to a 33 percent increase in average NGL sales prices
realized on sales of NGLs that Four Corners received under its processing contracts. This
increase resulted from general increases in market prices for these commodities between the
two periods;
    
    $3.5 million increase related to a 14 percent increase in NGL volumes that Four Corners
received under its processing contracts. This increase was related primarily to the impact
of equipment outages in the second quarter of 2005;
    
    $2.7 million of higher condensate sales primarily resulting from the recognition of two
additional months of condensate revenue in 2006. Prior to 2006, condensate revenue had
been recognized two months in arrears. As a result of more timely
sales information now made available from third parties, we have
recorded these on a current basis and thus have fully recognized this
activity through June 30, 2006. Our management concluded that
the effect of recoding the additional two months was not material to
our results for 2006 or prior periods or our trend of earnings; and
    
    $1.9 million higher sales of NGLs on behalf of third parties. These NGL sales are made
on behalf of producers who have Four Corners market their NGLs for a fee in accordance with
their contracts. This increase was offset by higher associated product costs of $1.9
million discussed below.
  19




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##### Table of Contents




    
    $3.2 million increase from 28 percent higher volumetric shrink requirements from Four
Corners keep-whole processing contracts; and
    
    $1.9 million increase from third party customers who elected to have Four Corners market
their NGLs. This increase is offset by the corresponding increase in product sales
discussed above.
  
    
    $3.0 million increase in non-shrink natural gas purchases due primarily to higher
volumetric gathering fuel requirements;
    
    $3.7 million increase in materials and supplies and outsides services expense related
primarily to increased compression and maintenance costs; and
    
    $1.1 million other operating and maintenance expense increases including $0.8 million
caused by labor and benefits increases associated primarily with the addition of new
personnel.
    Six months ended June 30, 2006 vs. six months ended June 30, 2005
  
    
    $12.2 million increase related to a 21 percent increase in average NGL sales prices
realized on sales of NGLs which Four Corners received under its processing contracts. This
increase resulted from general increases in market prices for these commodities between the
two periods;
    
    $2.8 million increase related to a five percent increase in NGL volumes which Four
Corners received under its processing contracts. This increase was related primarily to
equipment outages in the second quarter of 2005;
    
    $3.6 million of higher condensate sales, which includes $1.9 million resulting from the
recognition of two additional months of condensate revenue in 2006. Prior to 2006,
condensate revenue had been recognized two months in arrears. As a result of more timely
sales information now made available from third parties, we have
recorded these on a current basis and thus have fully recognized this
activity through June 30, 2006. Our management concluded that
the effect of recoding the additional two months was not material to
our results for 2006 or prior periods or our trend of earnings; and
    
    $2.3 million of higher LNG sales related primarily to an increase in volumes sold.
  20




---



##### Table of Contents




    
    $3.5 million increase from 12 percent higher average natural gas prices;
    
    $1.6 million increase from six percent higher volumetric shrink requirements from Four
Corners keep-whole processing contracts; and
    
    $1.8 million increase related to increased condensate and LNG sales.
  
    
    $5.2 million increase in non-shrink natural gas purchases due primarily to higher
volumetric gathering fuel requirements and higher system losses;
    
    $4.2 million increase in materials and supplies and outsides services expense related
primarily to increased compression and maintenance costs; and
    
    $1.8 million other operating and maintenance expense increases including $1.2 million
caused by labor and benefits increases associated primarily with the addition of new
personnel.
   21




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##### Table of Contents



Discovery Producer Services
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Thousands)Revenues
    
    $
    32,916
    
    
    $
    23,025
    
    
    $
    95,036
    
    
    $
    50,314Costs and expenses, including interest:Product cost and shrink replacement
    
    
    15,898
    
    
    
    9,711
    
    
    
    57,448
    
    
    
    20,835Operating and maintenance expense
    
    
    5,232
    
    
    
    5,118
    
    
    
    10,054
    
    
    
    9,111Depreciation and accretion
    
    
    6,374
    
    
    
    6,126
    
    
    
    12,753
    
    
    
    12,239General and administrative expense
    
    
    544
    
    
    
    518
    
    
    
    1,234
    
    
    
    1,018Interest income
    
    
    (601
    )
    
    
    (389
    )
    
    
    (1,227
    )
    
    
    (673
    )Other (income) expense, net
    
    
    (399
    )
    
    
    214
    
    
    
    (546
    )
    
    
    526Total costs and expenses, including interest
    
    
    27,048
    
    
    
    21,298
    
    
    
    79,716
    
    
    
    43,056Net income
    
    $
    5,868
    
    
    $
    1,727
    
    
    $
    15,320
    
    
    $
    7,258Williams Partners 40 percent interest 
Equity earnings per our Consolidated
Statements of Income$
    2,347
    
    
    $
    691
    
    
    $
    6,128
    
    
    $
    2,903
 Three months ended June 30, 2006 vs. three months ended June 30, 2005
  
    
    Product sales increased $8.7 million for NGL sales related to third-party processing
customers elections to have Discovery market their NGLs for a fee under an option in their
contracts. These sales were offset by higher associated product costs of $8.7 million
discussed below.
    
    Product sales also increased approximately $1.0 million as a result of an 11 percent
higher average sales prices.
    
    Transportation revenue increased $0.9 million, including $0.4 million due to additional
fee-based revenues related to the TGP and TETCO open season agreements discussed above.
    
    Processing and fractionation revenue increased $0.4 million in additional fee-based
revenues related to the TGP and TETCO open season agreements.
   22




---



##### Table of Contents



Six months ended June 30, 2006 vs. six months ended June 30, 2005
  
    
    Product sales increased $45.5 million for NGL sales related to third-party processing
customers elections to have Discovery market their NGLs for a fee under an option in their
contracts. These sales were offset by higher associated product costs of $45.5 million
discussed below.
    
    Processing and fractionation revenues increased $5.7 million, including $7.0 million in
additional fee-based revenues related to the TGP and TETCO open seasons discussed above and
$0.9 million from increased volumes from the Front Runner prospect that came on-line in the
first quarter of 2005, partially offset by a $2.2 million decrease in by-pass revenues and
other throughput declines.
    
    Transportation revenues increased $3.0 million, including $3.7 million in additional
fee-based revenues related to the TGP and TETCO open seasons discussed above and $0.9
million in rate increases, partially offset by $1.6 million related to other throughput
declines.
  
    
    Product sales decreased approximately $8.9 million as a result of 37 percent lower NGL
sales volumes following Hurricanes Katrina and Rita, partially offset by a $3.2 million
increase associated with 21 percent higher average sales prices.
    
    Product sales also decreased $0.9 million due to the absence of excess fuel and shrink
replacement gas sales in 2006.
    
    Gathering revenues decreased $2.8 million due primarily to a $1.4 million deficiency
payment received in the first quarter of 2005 and a $1.4 million decrease related to a
decline in both gathered volumes and rates.
   23




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##### Table of Contents



Outlook
 Carbonate Trend
  Four Corners
  
    
    We anticipate that sustained drilling activity, expansion opportunities and production
enhancement activities by producers should be sufficient to substantially offset the
historical decline or possibly increase gathered and processed volumes.
    
    Four Corners has realized above average margins at its gas processing plants in recent
years because of volatile natural gas and crude oil markets. We expect per-unit margins in
2006 will remain strong in relation to historical averages. Additionally, we anticipate
that Four Corners contract mix and commodity management activities will continue to allow
it to realize greater margins relative to industry averages.
    
    We anticipate that operating costs, excluding compression, will increase in 2006.
Compression cost increases are dependent upon the extent and amount of additional
compression needed to meet the needs of Four Corners customers and the cost at which
compression can be purchased, leased and operated. Additionally, we have made unbudgeted
expenditures in 2006 that are expected to have a positive long-term economic impact.
    
    We anticipate that the natural gas fuel cost associated with the operation of the
Milagro treating plant will increase due to the expiration, in October 2006, of a natural
gas purchase contract with Williams that contained pricing that has recently been below
market.
 24




---



##### Table of Contents



Discovery
  
    
    The Tahiti pipeline lateral expansion project is currently on schedule. We anticipate
the pipe will be installed by May 2007 and initial throughput will begin in April 2008.
    
    Throughput volumes for Discovery resulting from the TETCO open season ended on March 14,
2006. Currently Discovery continues to receive reduced throughput volumes from TGP.
Discovery is negotiating for the retention of some of this gas on a long-term basis and
will compete with several other plants in the area for this business.
    
    We anticipate lower gathered volumes from Discoverys pre-hurricane sources throughout
2006. The 2005 hurricanes caused a significant disruption in the normal operations of our
customers including critical recompletion and drilling activity necessary to sustain and
improve their production levels.
    
    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 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.
    
    On March 31, 2006, Discovery connected a new well in ATP Oil & Gas Corporations Gomez
prospect, currently the rate is approximately 30,000 MMBtu/d. ATP has announced that it
expects the rate to increase from this level.
    
    We anticipate a significant increase in Discoverys property damage insurance premiums,
which are due in October 2006. The expected increase is related to an overall increase in
premiums for property located in the Gulf Coast area following the 2005 hurricanes.
    
    During the second quarter of 2006, Discovery began receiving additional production at
South Timbalier 41, and is currently flowing approximately 100,000 MMBtu/d.
 25




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##### Table of Contents



Results of Operations  NGL Services
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Thousands)Segment revenues
    
    $
    12,716
    
    
    $
    11,411
    
    
    $
    29,046
    
    
    $
    21,900Costs and expenses:Operating and maintenance expense
    
    
    6,812
    
    
    
    2,523
    
    
    
    14,261
    
    
    
    8,144Product cost
    
    
    2,919
    
    
    
    3,327
    
    
    
    8,642
    
    
    
    6,062Depreciation and accretion
    
    
    600
    
    
    
    593
    
    
    
    1,200
    
    
    
    1,198General and administrative expense  direct
    
    
    235
    
    
    
    271
    
    
    
    536
    
    
    
    474Taxes other than income
    
    
    161
    
    
    
    146
    
    
    
    368
    
    
    
    338Other expense
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Total costs and expenses
    
    
    10,732
    
    
    
    6,860
    
    
    
    25,012
    
    
    
    16,216Segment profit
    
    $
    1,984
    
    
    $
    4,551
    
    
    $
    4,034
    
    
    $
    5,684
 Three months ended June 30, 2006 vs. three months ended June 30, 2005
  
    
    Storage revenues increased $1.3 million due primarily to higher average storage
volumes from additional short-term storage leases caused by the reduced demand for
propane due to the warm 2006 winter.
    
    Fractionation revenues increased $0.7 million due primarily to a 15 percent increase
in the average fractionation rate related to the pass through to customers of increased
fuel and power costs, and 21 percent higher fractionation volumes.
    
    Product sales were $0.8 million lower due primarily to lower sales volumes. This
decrease was offset by a related decrease in product cost discussed below.
  
    
    $1.8 million increase in outside services costs caused primarily by increased
storage cavern workovers related to our ongoing efforts to comply with KDHE regulatory
requirements and fractionator maintenance;
    
    The impact of a $1.5 million gain recognized in 2005 during the routine emptying of
caverns; and
    
    $0.8 million increase in fuel and power costs necessary to operate the fractionator
due to higher volumes and rates.
  26




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##### Table of Contents



Six months ended June 30, 2006 vs. six months ended June 30, 2005
  
    
    Product sales were $2.5 million higher due primarily to higher NGL sales prices.
These product sales revenues were largely offset by the related increase in product
cost.
    
    Fractionation revenues increased $2.2 million due primarily to a 24 percent increase
in the average fractionation rate related to the pass through to customers of increased
fuel and power costs and 19 percent higher volumes.
    
    Storage revenues increased $2.0 million due primarily to higher average storage
volumes from additional short-term storage leases caused by the reduced demand for
propane due to the warm 2006 winter.
    
    Other revenues increased $0.4 million due to increased butane conversion revenue and
increased terminalling revenue.
  
    
    $3.2 million increase in outside services costs caused primarily by increased
storage cavern workovers and fractionator maintenance; and
    
    $2.2 million higher fuel and power costs necessary to operate the fractionator due
to higher volumes and rates.
   Outlook
 
    
    For the third quarter of 2006, we anticipate that fractionation volumes will average
approximately 40,000 barrels per day, which is in-line with average fractionation volumes
for the second quarter of 2006. We expect to experience a slight decrease in throughput
due to high temperatures that negatively impact the plant capacity. We also expect to
continue to produce income from the blending and segregation of various products.
    
    The early results of the 2006 storage season are positive. During the first quarter of
2006, we received storage volume nominations for the storage year beginning April 1, 2006
that will generate revenues equal to last years record levels. There is still potential
for additional short-term storage leases in the fourth quarter of 2006.
    
    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 2006 and 2007 to ensure that we meet the
regulatory compliance requirement to complete cavern workovers before the end of 2008. For
the third quarter of 2006, we anticipate having two cavern workover rigs in operation and
are making good progress on cavern workovers.
 27




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##### Table of Contents



Financial Condition and Liquidity
 Outlook for 2006
  
    
    Cash and cash equivalents;
    
    Cash generated from operations;
    
    Cash distributions from Four Corners and Discovery;
    
    Capital contributions from Williams pursuant to an omnibus agreement; and
    
    Credit facilities, as needed.
   
    
    Maintenance capital expenditures for our Conway assets;
    
    Capital contributions to Discovery for its capital expenditure program;
    
    Quarterly distributions to our unitholders; and
    
    Carbonate Trend overburden restoration.
 Four Corners
  Discovery
    28




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##### Table of Contents



Capital Contributions from Williams
  
    
    Indemnification of environmental and related expenditures for a period of three years
(for certain of those expenditures) up to $14 million, which includes between $3.4 million
and $4.6 million for the restoration activities due to the partial erosion of the Carbonate
Trend pipeline overburden by Hurricane Ivan, approximately $3.1 million for capital
expenditures related to KDHE-related cavern compliance at our Conway storage facilities,
and approximately $1.0 million for our 40 percent share of Discoverys costs for marshland
restoration and repair or replacement of Paradis emission-control flare. As of June 30,
2006 we have received $0.4 million from Williams for these items.
    
    An annual credit for general and administrative expenses of $3.2 million in 2006, $2.4
million in 2007, $1.6 million in 2008 and $0.8 million in 2009. For the six months ended
June 30, 2006 we have received $1.6 million in credits.
    
    Up to $3.4 million to fund our 40 percent 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.
    
    Approximately $1.0 million for expensed KDHE-related compliance work at our Conway
storage facilities.
 Credit Facilities
    Senior Unsecured Notes
   29




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##### Table of Contents



1 2
  Capital Requirements
  
    
    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
    
    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.
   30




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##### Table of Contents



Working Capital Attributable to Deferred Revenues
  Cash Distributions to Unitholders
  Carbonate Trend Overburden Restoration
  31




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Results of Operations  Cash Flows
 Williams Partners L.P.
 Six months endedJune 30,2006
    
    2005(Thousands)Net cash provided by operating activities
    
    $
    14,024
    
    
    $
    3,677Net cash used by investing activities
    
    $
    (157,886
    )
    
    $
    (679
    )Net cash provided (used) by financing activities
    
    $
    164,522
    
    
    $
    (2,998
    )
  
    
    $8.0 million increase in distributed earnings from Discovery; and
    
    $5.3 million in lower interest expense due primarily to the forgiveness by Williams of
advances to us at the closing of our IPO.
    
    
    $225.2 million in proceeds from the sale of 7,590,000 common units, net of related
offering costs, and
    
    $146.8 million in proceeds from the issuance of debt, net of related issuance costs, to
finance our purchase of a 25.1 percent interest in Four Corners;
    
    $204.4 million excess purchase price over contributed basis of equity investment
distributed to Williams;
    
    $10.4 million of distributions paid to unitholders;
    
    $4.8 million of contributions from our general partner to maintain its ownership
interest following the issuance of the additional common units discussed above; and
    
    $2.4 million in indemnifications and reimbursements received from Williams pursuant to
the omnibus agreement.
  Four Corners and Discovery
  32




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##### Table of Contents



Four Corners  100 percent
 Six months endedJune 30,2006
    
    
    2005(Thousands)Operating Activities:Net income
    
    $
    64,957
    
    
    $
    52,710Adjustments to reconcile to cash provided by operations:Depreciation and accretion
    
    
    19,766
    
    
    
    19,434(Gain)/loss on sale of equipment
    
    
    (2,779
    )
    
    
    Cash used by changes in assets and liabilities
    
    
    (22,472
    )
    
    
    (9,470
    )Net cash provided by operating activities
    
    
    59,472
    
    
    
    62,674Investing Activities:Property, plant and equipment:Capital expenditures
    
    
    (15,998
    )
    
    
    (7,501
    )Proceeds from sales of equipment
    
    
    7,430
    
    
    
    Net cash used by investing activities
    
    
    (8,568
    )
    
    
    (7,501
    )Financing Activities:Distributions to Williams
    
    
    (46,863
    )
    
    
    (55,173
    )Net cash used by financing activities
    
    
    (46,863
    )
    
    
    (55,173
    )Net increase in cash and cash equivalents
    
    $
    4,041
    
    
    $
    
    33




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##### Table of Contents



Discovery  100 percent
 Six months endedJune 30,2006
    
    
    2005(Thousands)Operating Activities:Net income
    
    $
    15,320
    
    
    $
    7,258Adjustments to reconcile to cash provided by operations:Depreciation and accretion
    
    
    12,753
    
    
    
    12,239Cash provided (used) by changes in assets and liabilities
    
    
    3,200
    
    
    
    (2,280
    )Net cash provided by operating activities
    
    
    31,273
    
    
    
    17,217Investing Activities:Property, plant and equipment:Capital expenditures
    
    
    (22,260
    )
    
    
    (7,434
    )Change in accounts payable  capital expenditures
    
    
    1,163
    
    
    
    (9,874
    )Decrease in restricted cash
    
    
    12,050
    
    
    
    Net cash used by investing activities
    
    
    (9,047
    )
    
    
    (17,308
    )Financing Activities:Contributions from members
    
    
    7,383
    
    
    
    Distributions to members
    
    
    (22,598
    )
    
    
    Net cash used by financing activities
    
    
    (15,215
    )
    
    
    Net increase (decrease) in cash and cash equivalents
    
    $
    7,011
    
    
    $
    (91
    )
    
    
    $22.6 million of distributions paid to members, including two quarterly distributions
totaling $20.0 million; and
    
    $7.4 million of capital contributions from members other than us for the construction of
the Tahiti pipeline lateral expansion.
 Contractual Obligations
  34




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
  Commodity Price Risk
  
 Item 4. Controls and Procedures
   35




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Limited partner interests are inherently different from the capital stock of a corporation,
although many of the business risks to which we are subject are similar to those that would be
faced by a corporation engaged in a similar business. The following new or modified risk factors,
most of which relate to our recent acquisition of a 25.1 percent interest in Williams Four Corners
LLC and our recent issuance of $150 million aggregate principal amount of senior unsecured notes,
should be read in conjunction with the risk factors disclosed in Part I, Item 1A, Risk Factors,
in our annual report on Form 10-K for the year ended December 31, 2005. In addition to the
information contained elsewhere in this quarterly report, the following risk factors, along with
the risk factors contained in our annual report on Form 10-K for the year ended December 31, 2005,
should be carefully considered by each unitholder in evaluating an investment in us. If any of the
following risks or those risks included in our Form 10-K were actually to occur, our business,
results of operations and financial condition could be materially adversely affected. In that
case, we might not be able to pay distributions on our common units and the trading price of our
common units could decline and unitholders could lose all or part of their investment.
 Risks Inherent in Our Business
 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.
  
    
    the prices we obtain for our services;
    
    the prices of, level of production of, and demand for, natural gas and NGLs;
    
    the volumes of natural gas we gather, transport and process and the volumes of NGLs we
fractionate and store;
    
    the level of our operating costs, including payments to our general partner; and
    
    prevailing economic conditions.
  
    
    the level of capital expenditures we make;
    
    the restrictions contained in our and Williams debt agreements and our debt service requirements;
 36




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##### Table of Contents




    
    the cost of acquisitions, if any;
    
    fluctuations in our working capital needs;
    
    our ability to borrow for working capital or other purposes;
    
    the amount, if any, of cash reserves established by our general partner;
    
    the amount of cash that each of Discovery and Four Corners distributes to us; and
    
    reimbursement payments to us by, and credits from, Williams under the omnibus agreement.
  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.
    37




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##### Table of Contents



Lower natural gas and oil prices could adversely affect our fractionation and storage businesses.
   
    
    worldwide economic conditions;
    
    weather conditions and seasonal trends;
    
    the levels of domestic production and consumer demand;
    
    the availability of imported natural gas and NGLs;
    
    the availability of transportation systems with adequate capacity;
    
    the price and availability of alternative fuels;
    
    the effect of energy conservation measures;
    
    the nature and extent of governmental regulation and taxation; and
    
    the anticipated future prices of natural gas, NGLs and other commodities.
 Our processing, fractionation and storage businesses could be affected by any decrease in NGL
prices or a change in NGL prices relative to the price of natural gas.
   38




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##### Table of Contents



We depend on certain key customers and producers for a significant portion of our revenues and
supply of natural gas and NGLs. 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 NGLs or to treat natural gas, our revenues and cash
available to pay distributions could be adversely affected.
    39




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##### Table of Contents



Our future financial and operating flexibility may be adversely affected by restrictions in our
indenture and by our leverage.
   
    
    make it more difficult for us to satisfy our obligations with respect to our outstanding
notes and our other indebtedness, which could in turn result in an event of default on such
other indebtedness or our outstanding notes;
    
    impair our ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes;
    
    adversely affect our ability to pay cash distributions to our unitholders;
    
    diminish our ability to withstand a downturn in our business or the economy generally;
    
    require us to dedicate a substantial portion of our cash flow from operations to debt
service payments, thereby reducing the availability of cash for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate; and
    
    place us at a competitive disadvantage compared to our competitors that have
proportionately less debt.
   40




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##### Table of Contents



Neither Four Corners nor Discovery is prohibited from incurring indebtedness, which may affect our
ability to make distributions to our unitholders.
  We do not own all of the interests in the Conway fractionator, in Discovery or in Four Corners,
which could adversely affect our ability to operate and control these assets in a manner beneficial
to us.
  Discovery and Four Corners may reduce their cash distributions to us in some situations.
   We do not operate all of our assets. This reliance on others to operate our assets and to provide
other services could adversely affect our business and operating results.
   41




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##### Table of Contents



Our industry is highly competitive, and increased competitive pressure could adversely affect our
business and operating results.
       The only pipeline that provides NGL transportation capacity in the San Juan Basin has filed at FERC
to increase certain of its tariff rates. If the requested increase is granted, Four Corners
operating costs would increase, which could have an adverse effect on our business and operating
results.
  Pipeline integrity programs and repairs may impose significant costs and liabilities on us.
  42




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##### Table of Contents




    
    perform ongoing assessments of pipeline integrity;
    
    identify and characterize applicable threats to pipeline segments that could impact a
high consequence area;
    
    improve data collection, integration and analysis;
    
    repair and remediate the pipeline as necessary; and
    
    implement preventive and mitigating actions.
    We do not own all of the land on which our pipelines and facilities are located, which could
disrupt our operations.
  Our operations are subject to governmental laws and regulations relating to the protection of the
environment, which may expose us to significant costs and liabilities.
  43




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##### Table of Contents




    
    the Federal Clean Air Act and analogous state laws, which impose obligations related to
air emissions;
    
    the Federal Water Pollution Control Act of 1972, as renamed and amended as the Clean
Water Act, or CWA, and analogous state laws, which regulate discharge of wastewaters from
our facilities to state and federal waters;
    
    the federal Comprehensive Environmental Response, Compensation, and Liability Act, also
known as CERCLA or the Superfund law, and analogous state laws that regulate the cleanup of
hazardous substances that may have been released at properties currently or previously
owned or operated by us or locations to which we have sent wastes for disposal; and
    
    the federal Resource Conservation and Recovery Act, also known as RCRA, and analogous
state laws that impose requirements for the handling and discharge of solid and hazardous
waste from our facilities.
      44




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##### Table of Contents



The natural gas gathering operations in the San Juan Basin may be subjected to regulation by the
state of New Mexico, which could negatively affect Four Corners.
  Risks Inherent in an Investment in Us
 We have a holding company structure in which our subsidiaries conduct our operations and own our
operating assets, which may affect our ability to make payments on our outstanding notes and
distributions on our common units.
  Our common units have a limited trading history and a limited trading volume compared to other
units representing limited partner interests.
   
    
    our quarterly distributions;
    
    our quarterly or annual earnings or those of other companies in our industry;
    
    loss of a large customer;
    
    announcements by us or our competitors of significant contracts or acquisitions;
    
    changes in accounting standards, policies, guidance, interpretations or principles;
    
    general economic conditions;
    
    the failure of securities analysts to cover our common units or changes in financial
estimates by analysts;
    
    future sales of our common units; and
    
    the other factors described in the Risk Factors set forth in our annual report on
Form 10-K for the year ended December 31, 2005 and our quarterly reports on Form 10-Q.
 45




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##### Table of Contents



Item 5. Other Information
 
  Relationships
  46




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##### Table of Contents



Item 6. Exhibits
  ExhibitNumber
    
    Description*#Exhibit 2
    
    Purchase and Sale Agreement, dated April 6, 2006, by and among Williams Energy
Services, LLC, Williams Field Services Group, LLC, Williams Field Services
Company, LLC, Williams Partners GP LLC, Williams Partners L.P. 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 April 7,
2006).*Exhibit 3.1
    
    Certificate of Limited Partnership of Williams Partners L.P. (attached as Exhibit
3.1 to Williams Partners L.P.s registration statement on Form S-1 (File No.
333-124517) filed with the SEC on May 2, 2005).+Exhibit 3.2
    
    Amended and Restated Agreement of Limited Partnership of Williams Partners L.P.,
as amended.*Exhibit 4.1
    
    Indenture, dated June 20, 2006, by and among Williams Partners L.P., Williams
Partners Finance Corporation and JPMorgan Chase Bank, N.A. (attached as Exhibit
4.1 to Williams Partners L.P.s current report on Form 8-K (File No. 001-32599)
filed with the SEC on June 20, 2006).*Exhibit 4.2
    
    Form of 71 / 2 % Senior Note due 2011 (included as Exhibit 1 to
Rule144A/Regulation S Appendix of Exhibit 4.1 attached to Williams Partners L.P.s
current report on Form 8-K (File No. 001-32599) filed with the SEC on June 20,
2006).*Exhibit 4.3
    
    Registration Rights Agreement, dated June 20, 2006, by and between Williams
Partners L.P., Williams Partners Finance Corporation, Citigroup Global Markets
Inc. and Lehman Brothers Inc. (attached as Exhibit 4.3 to Williams Partners L.P.s
current report on Form 8-K (File No. 001-32599) filed with the SEC on June 20,
2006).*Exhibit 10.1
    
    Contribution, Conveyance and Assumption Agreement, dated June 20, 2006, by and
among Williams Energy Services, LLC, Williams Field Services Company, LLC,
Williams Field Services Group, LLC, Williams Partners GP LLC, Williams Partners
L.P. and Williams Partners Operating LLC (attached as Exhibit 10.1 to Williams
Partners L.P.s current report on Form 8-K (File No. 001-32599) filed with the SEC
on June 20, 2006).*Exhibit 10.2
    
    Credit Agreement dated as of May 1, 2006 among The Williams Companies, Inc.,
Williams Partners L.P., Northwest Pipeline Corporation, Transcontinental Gas Pipe
Line Corporation, and the Banks named therein, Citibank, N.A., as administrative
agent, and the other parties thereto (attached as 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 1, 2006).*Exhibit 10.3
    
    Amended and Restated Limited Liability Company Agreement of Williams Four Corners
LLC dated June 20, 2006 (attached as Exhibit 10.2 to Williams Partners L.P.s
current report on Form 8-K (File No. 001-32599) filed with the SEC on June 20,
2006).*Exhibit 10.4
    
    Loan Agreement, dated June 20, 2006, between The Williams Companies, Inc. and
Williams Four Corners LLC (attached as Exhibit 10.3 to Williams Partners L.P.s
current report on Form 8-K (File No. 001-32599) filed with the SEC on June 20,
2006).*Exhibit 10.5
    
    Contribution, Conveyance and Assumption Agreement, dated June 20, 2006, by and
among Williams Field Services Company, LLC and Williams Four Corners LLC (attached
as Exhibit 10.4 to Williams Partners L.P.s current report on Form 8-K (File No.
001-32599) filed with the SEC on June 20, 2006).+Exhibit 10.6
    
    Amendment No. 1 to Third Amended and Restated Limited Liability Company Agreement
for Discovery Producer Services LLC.+Exhibit 10.7
    
    Amended and Restated Working Capital Loan Agreement, dated August 7, 2006,
between The Williams Companies, Inc. and Williams Partners L.P.+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.
 47




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##### Table of Contents



+
    
    Filed herewith*
    
    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 48




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##### Table of Contents



SIGNATURES
  WILLIAMS PARTNERS L.P.By: Williams Partners GP LLC, its general partner/s/ Ted T. Timmermans

Ted. T. TimmermansController (Duly Authorized Officer and Principal Accounting Officer)August 8, 2006
 49




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description*#Exhibit 2
    
    Purchase and Sale Agreement, dated April 6, 2006, by and among Williams Energy Services,
LLC, Williams Field Services Group, LLC, Williams Field Services Company, LLC, Williams
Partners GP LLC, Williams Partners L.P. 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 April 7, 2006).*Exhibit 3.1
    
    Certificate of Limited Partnership of Williams Partners L.P. (attached as Exhibit 3.1 to
Williams Partners L.P.s registration statement on Form S-1 (File No. 333-124517) filed
with the SEC on May 2, 2005).+Exhibit 3.2
    
    Amended and Restated Agreement of Limited Partnership of Williams Partners L.P., as amended.*Exhibit 4.1
    
    Indenture, dated June 20, 2006, by and among Williams Partners L.P., Williams Partners
Finance Corporation and JPMorgan Chase Bank, N.A. (attached as Exhibit 4.1 to Williams
Partners L.P.s current report on Form 8-K (File No. 001-32599) filed with the SEC on June
20, 2006).*Exhibit 4.2
    
    Form of 71 / 2 % Senior Note due 2011 (included as Exhibit 1 to
Rule144A/Regulation S Appendix of Exhibit 4.1 attached to Williams Partners L.P.s current
report on Form 8-K (File No. 001-32599) filed with the SEC on June 20, 2006).*Exhibit 4.3
    
    Registration Rights Agreement, dated June 20, 2006, by and between Williams Partners L.P.,
Williams Partners Finance Corporation, Citigroup Global Markets Inc. and Lehman Brothers
Inc. (attached as Exhibit 4.3 to Williams Partners L.P.s current report on Form 8-K (File
No. 001-32599) filed with the SEC on June 20, 2006).*Exhibit 10.1
    
    Contribution, Conveyance and Assumption Agreement, dated June 20, 2006, by and among
Williams Energy Services, LLC, Williams Field Services Company, LLC, Williams Field
Services Group, LLC, Williams Partners GP LLC, Williams Partners L.P. and Williams Partners
Operating LLC (attached as Exhibit 10.1 to Williams Partners L.P.s current report on Form
8-K (File No. 001-32599) filed with the SEC on June 20, 2006).*Exhibit 10.2
    
    Credit Agreement dated as of May 1, 2006 among The Williams Companies, Inc., Williams
Partners L.P., Northwest Pipeline Corporation, Transcontinental Gas Pipe Line Corporation,
and the Banks named therein, Citibank, N.A., as administrative agent, and the other parties
thereto (attached as 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 1, 2006).*Exhibit 10.3
    
    Amended and Restated Limited Liability Company Agreement of Williams Four Corners LLC dated
June 20, 2006 (attached as Exhibit 10.2 to Williams Partners L.P.s current report on Form
8-K (File No. 001-32599) filed with the SEC on June 20, 2006).*Exhibit 10.4
    
    Loan Agreement, dated June 20, 2006, between The Williams Companies, Inc. and Williams Four
Corners LLC (attached as Exhibit 10.3 to Williams Partners L.P.s current report on Form
8-K (File No. 001-32599) filed with the SEC on June 20, 2006).*Exhibit 10.5
    
    Contribution, Conveyance and Assumption Agreement, dated June 20, 2006, by and among
Williams Field Services Company, LLC and Williams Four Corners LLC (attached as Exhibit
10.4 to Williams Partners L.P.s current report on Form 8-K (File No. 001-32599) filed with
the SEC on June 20, 2006).+Exhibit 10.6
    
    Amendment No. 1 to Third Amended and Restated Limited Liability Company Agreement for
Discovery Producer Services LLC.+Exhibit 10.7
    
    Amended and Restated Working Capital Loan Agreement, dated August 7, 2006, between The
Williams Companies, Inc. and Williams Partners L.P.+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.
 
 +
    
    Filed herewith*
    
    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 50