##### 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 September 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 Nine Months Ended September 30, 2007 and 2006
    
    
    3Consolidated Balance Sheets  September 30, 2007 and December 31, 2006
    
    
    4Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2007 and 2006
    
    
    5Consolidated Statement of Partners Capital from January 1, 2007 to September 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
    
    
    36Item 4. Controls and Procedures
    
    
    36Part II. Other InformationItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 6. Exhibits
    
    
    38Rule 13a-14(a)/15d-14(a) Certification of Chief Executive OfficerRule 13a-14(a)/15d-14(a) Certification of Chief Financial OfficerSection 1350 Certifications of Chief Executive Officer and Chief Financial Officer
  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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##### Table of Contents



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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006*
    
    
    2007
    
    
    2006*Revenues:Product sales:Affiliate
    
    $
    75,519
    
    
    $
    68,542
    
    
    $
    194,190
    
    
    $
    190,308Third-party
    
    
    4,297
    
    
    
    4,553
    
    
    
    15,680
    
    
    
    15,111Gathering and processing:Affiliate
    
    
    9,178
    
    
    
    10,162
    
    
    
    27,412
    
    
    
    30,851Third-party
    
    
    51,721
    
    
    
    52,679
    
    
    
    154,246
    
    
    
    153,460Storage
    
    
    7,404
    
    
    
    6,581
    
    
    
    20,632
    
    
    
    17,610Fractionation
    
    
    2,723
    
    
    
    2,708
    
    
    
    7,256
    
    
    
    9,650Other
    
    
    (1,266
    )
    
    
    1,357
    
    
    
    3,244
    
    
    
    3,513Total revenues
    
    
    149,576
    
    
    
    146,582
    
    
    
    422,660
    
    
    
    420,503Costs and expenses:Product cost and shrink replacement:Affiliate
    
    
    18,806
    
    
    
    19,159
    
    
    
    59,051
    
    
    
    58,596Third-party
    
    
    30,043
    
    
    
    25,542
    
    
    
    76,670
    
    
    
    74,824Operating and maintenance expense (excluding depreciation):Affiliate
    
    
    15,275
    
    
    
    10,681
    
    
    
    40,087
    
    
    
    39,768Third-party
    
    
    25,259
    
    
    
    26,888
    
    
    
    77,203
    
    
    
    76,155Depreciation, amortization and accretion
    
    
    10,345
    
    
    
    10,944
    
    
    
    34,757
    
    
    
    32,510General and administrative expense:Affiliate
    
    
    10,816
    
    
    
    7,730
    
    
    
    29,866
    
    
    
    24,238Third-party
    
    
    925
    
    
    
    1,038
    
    
    
    2,778
    
    
    
    3,293Taxes other than income
    
    
    2,474
    
    
    
    2,352
    
    
    
    7,214
    
    
    
    6,392Other (income) expense
    
    
    134
    
    
    
    90
    
    
    
    792
    
    
    
    (3,225
    )Total costs and expenses
    
    
    114,077
    
    
    
    104,424
    
    
    
    328,418
    
    
    
    312,551Operating income
    
    
    35,499
    
    
    
    42,158
    
    
    
    94,242
    
    
    
    107,952Equity earnings-Discovery Producer Services
    
    
    7,902
    
    
    
    6,083
    
    
    
    15,708
    
    
    
    15,275Interest expense:Affiliate
    
    
    (16
    )
    
    
    (15
    )
    
    
    (46
    )
    
    
    (45
    )Third-party
    
    
    (14,268
    )
    
    
    (3,256
    )
    
    
    (43,038
    )
    
    
    (4,110
    )Interest income
    
    
    312
    
    
    
    462
    
    
    
    2,556
    
    
    
    642Net income
    
    $
    29,429
    
    
    $
    45,432
    
    
    $
    69,422
    
    
    $
    119,714Allocation of net income:Net income
    
    $
    29,429
    
    
    $
    45,432
    
    
    $
    69,422
    
    
    $
    119,714Allocation of net income to general partner
    
    
    4,937
    
    
    
    32,851
    
    
    
    8,292
    
    
    
    98,439Allocation of net income to limited partners
    
    $
    24,492
    
    
    $
    12,581
    
    
    $
    61,130
    
    
    $
    21,275Basic and diluted net income per limited partner unit:Common units
    
    $
    0.62
    
    
    $
    0.58
    
    
    $
    1.41
    
    
    $
    1.19Subordinated units
    
    
    0.62
    
    
    
    0.58
    
    
    
    1.41
    
    
    
    1.19Weighted average number of units outstanding:Common units
    
    
    32,359,555
    
    
    
    14,597,072
    
    
    
    32,359,053
    
    (a)
    
    9,870,084Subordinated units
    
    
    7,000,000
    
    
    
    7,000,000
    
    
    
    7,000,000
    
    
    
    7,000,000
 
 *
    
    Restated as discussed in Note 1.(a)
    
    Includes Class B units converted to Common on May 21, 2007
(See Note 8).  3




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WILLIAMS PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)(Thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,089
    
    
    $
    57,541Accounts receivable:Trade
    
    
    17,693
    
    
    
    18,320Affiliate
    
    
    13,757
    
    
    
    12,420Other
    
    
    2,908
    
    
    
    3,991Gas purchase contract  affiliate
    
    
    1,188
    
    
    
    4,754Product imbalance
    
    
    7,283
    
    
    
    10,308Prepaid expense
    
    
    5,187
    
    
    
    3,765Other current assets
    
    
    2,499
    
    
    
    2,534Total current assets
    
    
    66,604
    
    
    
    113,633Investment in Discovery Producer Services
    
    
    209,791
    
    
    
    221,187Property, plant and equipment, net
    
    
    649,037
    
    
    
    647,578Other assets
    
    
    31,114
    
    
    
    34,752Total assets
    
    $
    956,546
    
    
    $
    1,017,150LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable    trade
    
    $
    23,610
    
    
    $
    19,827Product imbalance
    
    
    10,774
    
    
    
    10,959Deferred revenue
    
    
    7,205
    
    
    
    3,382Accrued interest
    
    
    10,563
    
    
    
    2,796Other accrued liabilities
    
    
    11,708
    
    
    
    13,377Total current liabilities
    
    
    63,860
    
    
    
    50,341Long-term debt
    
    
    750,000
    
    
    
    750,000Environmental remediation liabilities
    
    
    3,964
    
    
    
    3,964Other noncurrent liabilities
    
    
    8,146
    
    
    
    3,749Commitments and contingent liabilities (Note 8)Partners capital
    
    
    130,576
    
    
    
    209,096Total liabilities and partners capital
    
    $
    956,546
    
    
    $
    1,017,150
  4




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WILLIAMS PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006*(Thousands)OPERATING ACTIVITIES:Net income
    
    $
    69,422
    
    
    $
    119,714Adjustments to reconcile to cash provided by operations:Depreciation, amortization and accretion
    
    
    34,757
    
    
    
    32,510Amortization of gas purchase contract  affiliate
    
    
    3,566
    
    
    
    3,998Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (2,622
    )Equity earnings of Discovery Producer Services
    
    
    (15,708
    )
    
    
    (15,275
    )Distributions related to equity earnings of
Discovery Producer Services
    
    
    13,106
    
    
    
    10,183Cash provided (used) by changes in assets and liabilities:Accounts receivable
    
    
    373
    
    
    
    (25,090
    )Prepaid expense
    
    
    (1,500
    )
    
    
    (1,000
    )Other current assets
    
    
    35
    
    
    
    Accounts payable
    
    
    3,246
    
    
    
    (8,043
    )Product imbalance
    
    
    2,840
    
    
    
    (4,900
    )Deferred revenue
    
    
    4,347
    
    
    
    3,266Accrued liabilities
    
    
    10,257
    
    
    
    3,009Other, including changes in non-current liabilities
    
    
    4,324
    
    
    
    771Net cash provided by operating activities
    
    
    129,065
    
    
    
    116,521INVESTING ACTIVITIES:Property, plant and equipment:Capital expenditures
    
    
    (33,029
    )
    
    
    (21,514
    )Change in accrued liabilities-capital expenditures
    
    
    (4,779
    )
    
    
    Proceeds from sales of property, plant and equipment
    
    
    
    
    
    
    7,299Purchase of equity investment
    
    
    (69,061
    )
    
    
    (156,129
    )Distributions in excess of equity earnings of
Discovery Producer Services
    
    
    4,964
    
    
    
    1,817Other
    
    
    536
    
    
    
    Net cash used by investing activities
    
    
    (101,369
    )
    
    
    (168,527
    )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
    )
    
    
    (203,871
    )Payment of debt issuance costs
    
    
    
    
    
    
    (3,138
    )Payment of offering costs
    
    
    
    
    
    
    (2,168
    )Distributions to unitholders
    
    
    (62,935
    )
    
    
    (19,875
    )Distributions to The Williams Companies, Inc.
    
    
    
    
    
    
    (73,842
    )General partner contributions
    
    
    
    
    
    
    4,841Contributions per omnibus agreement
    
    
    2,726
    
    
    
    4,244Net cash provided (used) by financing activities
    
    
    (69,148
    )
    
    
    83,298Increase (decrease) in cash and cash equivalents
    
    
    (41,452
    )
    
    
    31,292Cash and cash equivalents at beginning of period
    
    
    57,541
    
    
    
    6,839Cash and cash equivalents at end of period
    
    $
    16,089
    
    
    $
    38,131
 
 *
    
    Restated as discussed in Note 1.  5




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WILLIAMS PARTNERS L.P.
CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
(Unaudited)
 Limited Partners
    
    
    
    
    
    
    Accumulated Other
    
    
    TotalGeneral
    
    
    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
    
    
    44,772
    
    
    
    9,212
    
    
    
    10,530
    
    
    
    4,908
    
    
    
    
    
    
    
    69,422Other comprehensive loss:Net unrealized losses on cash
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )
    
    
    (620
    )Total other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,802Cash distributions
    
    
    (41,776
    )
    
    
    (6,601
    )
    
    
    (10,465
    )
    
    
    (4,093
    )
    
    
    
    
    
    
    (62,935
    )Contributions pursuant to the omnibus
agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,726
    
    
    
    
    
    
    
    2,726Conversion of B units to Common
(6,805,492 units)
    
    
    244,534
    
    
    
    (244,534
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,035
    )
    
    
    
    
    
    
    (9,035
    )Other
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78
    )Balance  September 30, 2007
    
    $
    981,330
    
    
    $
    
    
    
    $
    108,927
    
    
    $
    (959,061
    )
    
    $
    (620
    )
    
    $
    130,576
  6




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##### Table of Contents



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
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006*
    
    
    2007
    
    
    2006*Allocation to general partner:Net income
    
    $
    29,429
    
    
    $
    45,432
    
    
    $
    69,422
    
    
    $
    119,714Net income applicable to pre-partnership operations allocated
to general partner
    
    
    
    
    
    
    (33,472
    )
    
    
    (2,602
    )
    
    
    (100,575
    )2nd quarter beneficial conversion of Class B units**
    
    
    
    
    
    
    
    
    
    
    (5,308
    )
    
    
    Charges direct to general partner:Reimbursable general and administrative costs
    
    
    605
    
    
    
    806
    
    
    
    1,795
    
    
    
    2,393Core drilling indemnified costs
    
    
    
    
    
    
    679
    
    
    
    
    
    
    
    784Total charges direct to general partner
    
    
    605
    
    
    
    1,485
    
    
    
    1,795
    
    
    
    3,177Income subject to 2% allocation of general
partner interest
    
    
    30,034
    
    
    
    13,445
    
    
    
    63,307
    
    
    
    22,316General partners share of net income
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %General partners allocated share of net income before
items directly allocable to general partner interest
    
    
    600
    
    
    
    268
    
    
    
    1,266
    
    
    
    446Incentive distributions paid to general
partner
    
    
    1,267
    
    
    
    74
    
    
    
    2,835
    
    
    
    74Direct charges to general partner
    
    
    (605
    )
    
    
    (1,485
    )
    
    
    (1,795
    )
    
    
    (3,177
    )Pre-partnership net income allocated to general partner
    
    
    
    
    
    
    33,472
    
    
    
    2,602
    
    
    
    100,575Net income allocated to general partner
    
    $
    1,262
    
    
    $
    32,329
    
    
    $
    4,908
    
    
    $
    97,918Net income
    
    $
    29,429
    
    
    $
    45,432
    
    
    $
    69,422
    
    
    $
    119,714Net income allocated to general partner
    
    
    1,262
    
    
    
    32,329
    
    
    
    4,908
    
    
    
    97,918Net income allocated to limited partners
    
    $
    28,167
    
    
    $
    13,103
    
    
    $
    64,514
    
    
    $
    21,796
 
 *
    
    Restated as discussed in Note 1. 8




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##### Table of Contents



**
    
    On May 21, 2007, our outstanding Class B units were converted into common units on a
one-for-one basis. Accordingly, under EITF 98-05, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios we should have made
a $5.3 million non-cash allocation of income to the Class B units representing the Class B unit
beneficial conversion feature in the second quarter of 2007. The $5.3 million beneficial
conversion feature was computed as the product of the 6,805,492 Class B units and the difference
between the fair value of a privately placed common unit on the date of issuance ($36.59) and
the issue price of a Class B unit ($35.81). This results in an $0.08 decrease from $0.56 per
unit to $0.48 per unit on our earnings per common unit for the second quarter of 2007. Because
we did not make this $5.3 million non-cash allocation in the second quarter of 2007, we have
reflected this adjustment in the year-to-date earnings per common unit through September 30,
2007. While this correction affects net income available to limited partners, it does not
affect net income, cash flows nor does it affect total partners equity.    General PartnerIncentivePer Unit
    
    Common
    
    Subordinated
    
    Class B
    
    
    
    Distribution
    
    Total CashPayment Date
    
    Distribution
    
    Units
    
    Units
    
    Units
    
    2%
    
    Rights
    
    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
    
    $
    0.4250
    
    
    $
    6,204
    
    
    $
    2,975
    
    
    $
    
    

    
    
    189
    

    
    
    74
    

    
    $
    9,44211/14/2006
    
    $
    0.4500
    
    
    $
    6,569
    
    
    $
    3,150
    
    
    $
    
    

    
    
    202
    

    
    
    199
    

    
    $
    10,1202/14/2007
    
    $
    0.4700
    
    
    $
    12,010
    
    
    $
    3,290
    
    
    $
    3,198
    

    
    
    390
    

    
    
    603
    

    
    $
    19,4915/15/2007
    
    $
    0.5000
    
    
    $
    12,777
    
    
    $
    3,500
    
    
    $
    3,403
    

    
    
    421
    

    
    
    965
    

    
    $
    21,0668/14/2007
    
    $
    0.5250
    
    
    $
    16,989
    
    
    $
    3,675
    
    
    $
    
    

    
    
    447
    

    
    
    1,267
    

    
    $
    22,37811/14/2007(a)
    
    $
    0.5500
    
    
    $
    17,799
    
    
    $
    3,850
    
    
    $
    
    

    
    
    487
    

    
    
    2,211
    

    
    $
    24,347
 
 (a)
    
    The board of directors of our general partner declared this cash distribution on
October 23, 2007 to be paid on November 14, 2007 to unitholders of record at the close of
business on November 7, 2007. 9




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Note 4. Out of Period Adjustments
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Increase (decrease) in net incomeGathering and Processing  WestAdjustment to property,
plant and equipment
and deferred revenue
balances related to
electronic flow
measurement revenue
recognition
    
    $
    (2,108
    )
    
    $
    
    
    
    $
    (2,108
    )
    
    $
    Adjustment to record
condensate revenue on a
current basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,900Adjustment 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000Misstated accounts
payable balances at June
30, 2006 corrected in
the third quarter of
2006
    
    
    
    
    
    
    (2,000
    )
    
    
    
    
    
    
    Misstated accounts
payable balances at June
30, 2006 corrected in
the third quarter of
2006
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    
 10




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##### Table of Contents

'

Note 5. Equity Investments
  Discovery Producer Services LLC
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Current assets
    
    $
    61,048
    
    
    $
    73,841Non-current restricted cash and cash equivalents
    
    
    6,117
    
    
    
    28,773Property, plant and equipment, net
    
    
    378,552
    
    
    
    355,304Current liabilities
    
    
    (33,166
    )
    
    
    (40,559
    )Non-current liabilities
    
    
    (13,993
    )
    
    
    (3,728
    )Members capital
    
    $
    398,558
    
    
    $
    413,631
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)Revenues:Affiliate
    
    $
    51,829
    
    
    $
    38,755
    
    
    $
    144,997
    
    
    $
    113,992Third-party
    
    
    8,281
    
    
    
    8,663
    
    
    
    31,098
    
    
    
    28,462Costs and expenses:Affiliate
    
    
    24,973
    
    
    
    13,263
    
    
    
    72,145
    
    
    
    54,397Third-party
    
    
    22,452
    
    
    
    24,459
    
    
    
    78,986
    
    
    
    65,662Interest income
    
    
    (389
    )
    
    
    (608
    )
    
    
    (1,472
    )
    
    
    (1,835
    )Loss on sale of operating assets
    
    
    
    
    
    
    
    
    
    
    603
    
    
    
    Foreign exchange (gain) loss
    
    
    (94
    )
    
    
    166
    
    
    
    (346
    )
    
    
    (1,228
    )Net income
    
    $
    13,168
    
    
    $
    10,138
    
    
    $
    26,179
    
    
    $
    25,458
  Nine Months EndedSeptember 30,2007
    
    2006Cash distributions from Discovery to Williams
    
    $
    9,035
    
    
    $
    6,000
 11




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##### Table of Contents



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




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##### 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



Environmental Matters-Conway.
  Will Price.
 Grynberg.
 14




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##### Table of Contents



GE Litigation.
 Outstanding Registration Rights Agreement.
 Other.
 Summary.
 15




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##### Table of Contents



Note 9. Segment Disclosures
  Gathering &Gathering &
    
    
    Processing -
    
    
    NGLProcessing - West
    
    
    Gulf
    
    
    Services
    
    
    Total(In thousands)Three Months Ended September 30, 2007:Segment revenues
    
    $
    134,035
    
    
    $
    521
    
    
    $
    15,020
    
    
    $
    149,576Operating and maintenance expense
    
    
    34,267
    
    
    
    443
    
    
    
    5,824
    
    
    
    40,534Product cost and shrink replacement
    
    
    45,791
    
    
    
    
    
    
    
    3,058
    
    
    
    48,849Depreciation, amortization and accretion
    
    
    8,564
    
    
    
    304
    
    
    
    1,477
    
    
    
    10,345Direct general and administrative expense
    
    
    1,839
    
    
    
    
    
    
    
    510
    
    
    
    2,349Other, net
    
    
    2,414
    
    
    
    
    
    
    
    194
    
    
    
    2,608Segment operating income (loss)
    
    
    41,160
    
    
    
    (226
    )
    
    
    3,957
    
    
    
    44,891Equity earnings  Discovery Producer Services
    
    
    
    
    
    
    7,902
    
    
    
    
    
    
    
    7,902Segment profit
    
    $
    41,160
    
    
    $
    7,676
    
    
    $
    3,957
    
    
    $
    52,793Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    44,891General and administrative expenses:Allocated  affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,670
    )Third party  direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (722
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    35,499Three Months Ended September 30, 2006*:Segment revenues
    
    $
    132,603
    
    
    $
    632
    
    
    $
    13,347
    
    
    $
    146,582Operating and maintenance expense
    
    
    29,950
    
    
    
    399
    
    
    
    7,220
    
    
    
    37,569Product cost and shrink replacement
    
    
    41,821
    
    
    
    
    
    
    
    2,880
    
    
    
    44,701Depreciation, amortization and accretion
    
    
    10,035
    
    
    
    300
    
    
    
    609
    
    
    
    10,944Direct general and administrative expense
    
    
    2,838
    
    
    
    
    
    
    
    279
    
    
    
    3,117Other, net
    
    
    2,260
    
    
    
    
    
    
    
    182
    
    
    
    2,442Segment operating income (loss)
    
    
    45,699
    
    
    
    (67
    )
    
    
    2,177
    
    
    
    47,809Equity earnings  Discovery Producer Services
    
    
    
    
    
    
    6,083
    
    
    
    
    
    
    
    6,083Segment profit
    
    $
    45,699
    
    
    $
    6,016
    
    
    $
    2,177
    
    
    $
    53,892Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    47,809General and administrative expenses:Allocated  affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,091
    )Third party  direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (560
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,158
 
 *
    
    Restated as discussed in Note 1. 16




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##### Table of Contents



Gathering &Gathering &
    
    
    Processing -
    
    
    NGLProcessing - West
    
    
    Gulf
    
    
    Services
    
    
    Total(In thousands)Nine Months Ended September 30, 2007:Segment revenues
    
    $
    379,510
    
    
    $
    1,541
    
    
    $
    41,609
    
    
    $
    422,660Operating and maintenance expense
    
    
    96,851
    
    
    
    1,354
    
    
    
    19,085
    
    
    
    117,290Product cost and shrink replacement
    
    
    127,779
    
    
    
    
    
    
    
    7,942
    
    
    
    135,721Depreciation, amortization and accretion
    
    
    30,942
    
    
    
    911
    
    
    
    2,904
    
    
    
    34,757Direct general and administrative expense
    
    
    5,457
    
    
    
    
    
    
    
    1,478
    
    
    
    6,935Other, net
    
    
    7,422
    
    
    
    
    
    
    
    584
    
    
    
    8,006Segment operating income (loss)
    
    
    111,059
    
    
    
    (724
    )
    
    
    9,616
    
    
    
    119,951Equity earnings  Discovery Producer Services
    
    
    
    
    
    
    15,708
    
    
    
    
    
    
    
    15,708Segment profit
    
    $
    111,059
    
    
    $
    14,984
    
    
    $
    9,616
    
    
    $
    135,659Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    119,951General and administrative expenses:Allocated  affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,324
    )Third party  direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,385
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    94,242Nine Months Ended September 30, 2006*:Segment revenues
    
    $
    376,069
    
    
    $
    2,041
    
    
    $
    42,393
    
    
    $
    420,503Operating and maintenance expense
    
    
    93,570
    
    
    
    872
    
    
    
    21,481
    
    
    
    115,923Product cost and shrink replacement
    
    
    121,898
    
    
    
    
    
    
    
    11,522
    
    
    
    133,420Depreciation, amortization and accretion
    
    
    29,801
    
    
    
    900
    
    
    
    1,809
    
    
    
    32,510Direct general and administrative expense
    
    
    8,599
    
    
    
    9
    
    
    
    815
    
    
    
    9,423Other, net
    
    
    2,612
    
    
    
    
    
    
    
    555
    
    
    
    3,167Segment operating income
    
    
    119,589
    
    
    
    260
    
    
    
    6,211
    
    
    
    126,060Equity earnings  Discovery Producer Services
    
    
    
    
    
    
    15,275
    
    
    
    
    
    
    
    15,275Segment profit
    
    $
    119,589
    
    
    $
    15,535
    
    
    $
    6,211
    
    
    $
    141,335Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    126,060General and administrative expenses:Allocated  affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,434
    )Third party  direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,674
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    107,952
 
 *
    
    Restated as discussed in Note 1. 17




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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  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




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##### Table of Contents



Results of Operations
 Consolidated Overview
  Three months ended
    
    
    
    
    
    
    Nine months ended
    
    
    % ChangeSeptember 30,
    
    
    % Change from
    
    
    September 30,
    
    
    from2007
    
    
    2006
    
    
    2006(1)
    
    
    2007
    
    
    2006
    
    
    2006(1)(Thousands)
    
    
    
    
    
    
    (Thousands)Revenues
    
    $
    149,576
    
    
    $
    146,582
    
    
    
    +2
    %
    
    $
    422,660
    
    
    $
    420,503
    
    
    
    +1
    %Costs and expenses:Product cost and shrink
replacement
    
    
    48,849
    
    
    
    44,701
    
    
    
    -9
    %
    
    
    135,721
    
    
    
    133,420
    
    
    
    -2
    %Operating and maintenance
Expense
    
    
    40,534
    
    
    
    37,569
    
    
    
    -8
    %
    
    
    117,290
    
    
    
    115,923
    
    
    
    -1
    %Depreciation,
amortization and
accretion
    
    
    10,345
    
    
    
    10,944
    
    
    
    +5
    %
    
    
    34,757
    
    
    
    32,510
    
    
    
    -7
    %General and administrative
Expense
    
    
    11,741
    
    
    
    8,768
    
    
    
    -34
    %
    
    
    32,644
    
    
    
    27,531
    
    
    
    -19
    %Taxes other than income
    
    
    2,474
    
    
    
    2,352
    
    
    
    -5
    %
    
    
    7,214
    
    
    
    6,392
    
    
    
    -13
    %Other (income) expense
    
    
    134
    
    
    
    90
    
    
    
    -49
    %
    
    
    792
    
    
    
    (3,225
    )
    
    NMTotal costs and expenses
    
    
    114,077
    
    
    
    104,424
    
    
    
    -9
    %
    
    
    328,418
    
    
    
    312,551
    
    
    
    -5
    %Operating income
    
    
    35,499
    
    
    
    42,158
    
    
    
    -16
    %
    
    
    94,242
    
    
    
    107,952
    
    
    
    -13
    %Equity earnings  Discovery
    
    
    7,902
    
    
    
    6,083
    
    
    
    +30
    %
    
    
    15,708
    
    
    
    15,275
    
    
    
    3
    %Interest expense
    
    
    (14,284
    )
    
    
    (3,271
    )
    
    NM
    
    
    
    (43,084
    )
    
    
    (4,155
    )
    
    NMInterest income
    
    
    312
    
    
    
    462
    
    
    
    -32
    %
    
    
    2,556
    
    
    
    642
    
    
    NMNet income
    
    $
    29,429
    
    
    $
    45,432
    
    
    
    -35
    %
    
    $
    69,422
    
    
    $
    119,714
    
    
    
    -42
    %
 
 (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 September 30, 2007 vs. three months ended September 30, 2006
   19




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##### Table of Contents



Nine months ended September 30, 2007 vs. nine months ended September 30, 2006
        20




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##### Table of Contents



Results of operations  Gathering and Processing  West
  Four Corners
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Thousands)Revenues
    
    $
    134,035
    
    
    $
    132,603
    
    
    $
    379,510
    
    
    $
    376,069Costs and expenses, including interest:Product cost and shrink replacement
    
    
    45,791
    
    
    
    41,821
    
    
    
    127,779
    
    
    
    121,898Operating and maintenance expense
    
    
    34,267
    
    
    
    29,950
    
    
    
    96,851
    
    
    
    93,570Depreciation, amortization and accretion
    
    
    8,564
    
    
    
    10,035
    
    
    
    30,942
    
    
    
    29,801General and administrative expense  direct
    
    
    1,839
    
    
    
    2,838
    
    
    
    5,457
    
    
    
    8,599Taxes other than income
    
    
    2,278
    
    
    
    2,170
    
    
    
    6,628
    
    
    
    5,842Other (income) expense, net
    
    
    136
    
    
    
    90
    
    
    
    794
    
    
    
    (3,230
    )Total costs and expenses
    
    
    92,875
    
    
    
    86,904
    
    
    
    268,451
    
    
    
    256,480Segment profit
    
    $
    41,160
    
    
    $
    45,699
    
    
    $
    111,059
    
    
    $
    119,589
 Three months ended September 30, 2007 vs. three months ended September 30, 2006
   
    
    $4.3 million higher sales of NGLs on behalf of third party producers from whom we
purchase NGLs for a fee under their contracts. We subsequently sell the NGLs to an
affiliate. This increase is offset by higher associated product costs of $4.3 million
discussed below.
    
    $3.3 million related to a 8% increase in average NGL sales prices realized on sales of
NGLs which we received under certain processing contracts; and
 21




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##### Table of Contents




    
    $5.5 million higher non-shrink natural gas purchases caused primarily by $3.7 million
higher system losses. During the third quarter of 2007 our volumetric loss, as a percentage of
total volume received, was higher than in 2006. System losses are an unpredictable component of
our operating costs. Given the scale of throughput on Four Corners system, relatively small
percentage product losses can generate a fairly significant impact to operating costs.
    
    $1.7 million higher leased compression costs under agreements that are currently being
renegotiated but are at present under month-to-month terms.
    
    $1.3 million higher rent expense related to the purchase of a temporary special business
license upon the expiration of a right-of-way agreement.
     Nine months ended September 30, 2007 vs. nine months ended September 30, 2006
  22




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##### Table of Contents




    
    $6.9 million related to a 6% increase in average NGL sales prices realized on sales of
NGLs which we received under certain processing contracts.
    
    $5.5 million higher sales of NGLs on behalf of third party producers from whom we
purchase NGLs for a fee under their contracts. We subsequently sell the NGLs to an
affiliate. This increase is offset by higher associated product costs of $5.5 million
discussed below.
  
    
    $2.6 million decrease in condensate and liquefied natural gas sales due primarily to the
absence of the $1.9 million second quarter 2006 adjustment discussed in Note 4 of the Notes
to Consolidated Financial Statements. Prior to 2006, condensate revenue had been
recognized two months in arrears.
    
    $1.3 million related to a 1% decrease in NGL volumes that we received under certain
processing contracts.
     
    
    $3.8 million higher leased compression costs under agreements that are currently being
renegotiated but are at present under month-to-month terms.
    
    $3.1 million higher non-shrink natural gas purchases caused primarily by higher fuel
costs, partially offset by lower system losses.
    
    $2.6 million higher right-of-way expense related to our special business licenses with
the Jicarilla Apache Nation.
      23




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##### Table of Contents



Outlook
  
    
    We anticipate that gathered volumes in the fourth quarter of 2007 will continue to
increase over the previous quarters of 2007 due to improved operating conditions, sustained
drilling activity, expansion opportunities and production enhancement activities by
existing customers.
    
    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 will likely 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,
Accounting for Derivative Instruments and Hedging Activities.
    
    We anticipate that operating costs, excluding compression, will remain stable 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.
    
    Our right of way agreement with the Jicarilla Apache Nation (JAN), which covered certain
gathering system assets in Rio Arriba County of northern New Mexico, expired on December 31, 2006.
We currently operate our gathering assets on the JAN lands pursuant to a special business license
granted by the JAN which expires December 31, 2007. We are engaged in discussions with the JAN
designed to result in the sale of our gathering assets which are located on or are isolated by the
JAN lands. Provided the parties are able to reach an acceptable value on the sale of the subject
gathering assets, our expectation is that we will nonetheless maintain partial revenues associated
with gathering and processing downstream of the JAN lands and continue to operate the gathering
assets on the JAN lands for an undetermined period of time beyond December 31, 2007. Based on current estimated gathering volumes and a range of annual average commodity prices over the past five years, we estimate that gas produced on or isolated by the JAN lands represents approximately $20 to $30 million of Four Corners' annual gathering and processing revenue less related product costs.
 24




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##### Table of Contents



Results of Operations  Gathering and Processing  Gulf
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Thousands)Segment revenues
    
    $
    521
    
    
    $
    632
    
    
    $
    1,541
    
    
    $
    2,041Costs and expenses:Operating and maintenance expense
    
    
    443
    
    
    
    399
    
    
    
    1,354
    
    
    
    872Depreciation
    
    
    304
    
    
    
    300
    
    
    
    911
    
    
    
    900General and administrative expense
 direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Total costs and expenses
    
    
    747
    
    
    
    699
    
    
    
    2,265
    
    
    
    1,781Segment operating income (loss)
    
    
    (226
    )
    
    
    (67
    )
    
    
    (724
    )
    
    
    260Equity earnings  Discovery (60%)
    
    
    7,902
    
    
    
    6,083
    
    
    
    15,708
    
    
    
    15,275Segment profit
    
    $
    7,676
    
    
    $
    6,016
    
    
    $
    14,984
    
    
    $
    15,535
 Carbonate Trend
  25




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##### Table of Contents



Discovery Producer Services  100 %
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Thousands)Revenues
    
    $
    60,110
    
    
    $
    47,418
    
    
    $
    176,095
    
    
    $
    142,454Costs and expenses, including interest:Product cost and shrink replacement
    
    
    34,538
    
    
    
    26,862
    
    
    
    107,945
    
    
    
    84,310Operating and maintenance expense
    
    
    5,751
    
    
    
    3,864
    
    
    
    21,265
    
    
    
    13,918Depreciation and accretion
    
    
    6,243
    
    
    
    6,380
    
    
    
    19,234
    
    
    
    19,133General and administrative expense
    
    
    579
    
    
    
    372
    
    
    
    1,702
    
    
    
    1,606Interest income
    
    
    (389
    )
    
    
    (608
    )
    
    
    (1,472
    )
    
    
    (1,835
    )Other (income) expense, net
    
    
    220
    
    
    
    410
    
    
    
    1,242
    
    
    
    (136
    )Total costs and expenses, including interest
    
    
    46,942
    
    
    
    37,280
    
    
    
    149,916
    
    
    
    116,996Net income
    
    $
    13,168
    
    
    $
    10,138
    
    
    $
    26,179
    
    
    $
    25,458Williams Partners 60% interest  Equity
earnings per our Consolidated Statements of
Income$
    7,902
    
    
    $
    6,083
    
    
    $
    15,708
    
    
    $
    15,275
 Three months ended September 30, 2007 vs. three months ended September 30, 2006
   
    
    $0.6 million lower transportation revenues due to $1.9 million from lower average
transportation rates partially offset by $1.3 million from higher transportation volumes.
    
    Fee-based gathering, processing and fractionation revenues that decreased $1.6 million
due primarily to reduced fee-based revenues related to processing Texas Eastern
Transmission Company (TETCO) open season volumes. 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.
    26




---



##### Table of Contents



Nine months ended September 30, 2007 vs. Nine months ended September 30, 2006
  
    
    Product sales increased $44.5 million, primarily due to $31.8 million from higher NGL
volumes sold under certain processing contracts, including the TETCO agreement, $6.2
million from higher average NGL prices received for these NGLs, $3.9 million increase in
NGL sales related to third-party processing customers elections to have Discovery purchase
their NGLs under an option in their contracts 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 gathering, processing and fractionation revenues decreased $7.5 million due
primarily to 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 $2.5 million, including $3.7 million in reduced
fee-based revenues related to the absence of TGP and TETCO open season agreements discussed
above.
     27




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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 2007. 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. Chevron
recently announced that it expects first production by the third
quarter of 2009. 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.
    
    Effective June 1, 2007, Discovery amended the 100 BBtu/d contract with TETCO to increase
the volume to 200 BBtu/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.
    
    Discovery has contracted additional throughput of 70 BBtu/d and 140 BBtu/d for October
and November 2007, respectively, under short-term keep-whole agreements with shippers.
    
    ATP Oil & Gas Corporation completed modifications to their
Gomez facility in October 2007, which will increase the volumes to
approximately 75 BBtu/d.
    
    Discovery has contracted additional throughput of
approximately 25 BBtu/d increasing to
approximately 50 BBtu/d in 2008 with Energy Partners Limited.
 28




---



##### Table of Contents



Results of Operations  NGL Services
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Thousands)Segment revenues
    
    $
    15,020
    
    
    $
    13,347
    
    
    $
    41,609
    
    
    $
    42,393Costs and expenses:Operating and maintenance expense
    
    
    5,824
    
    
    
    7,220
    
    
    
    19,085
    
    
    
    21,481Product cost
    
    
    3,058
    
    
    
    2,880
    
    
    
    7,942
    
    
    
    11,522Depreciation and accretion
    
    
    1,477
    
    
    
    609
    
    
    
    2,904
    
    
    
    1,809General and administrative expense  direct
    
    
    510
    
    
    
    279
    
    
    
    1,478
    
    
    
    815Other expense, net
    
    
    194
    
    
    
    182
    
    
    
    584
    
    
    
    555Total costs and expenses
    
    
    11,063
    
    
    
    11,170
    
    
    
    31,993
    
    
    
    36,182Segment profit
    
    $
    3,957
    
    
    $
    2,177
    
    
    $
    9,616
    
    
    $
    6,211
 Three months ended September 30, 2007 vs. three months ended September 30, 2006
  
    
    Storage revenues increased $0.8 million due primarily to higher average storage rates.
    
    Low sulfur natural gasoline upgrade fees increased $0.7 million. This upgrade service
began in late 2006.
    Nine months ended September 30, 2007 vs. nine months ended September 30, 2006
  
    
    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 17% lower fractionation
volumes and 9% lower rates. Fractionation throughput was lower during 2007 due to a
customers decision to fractionate a
 29




---



##### Table of Contents



percentage of their volumes outside of the Mid-Continent region for three months. 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 $3.0 million due primarily to more contracted storage and
higher average storage rates for all of 2007.
    
    Other revenue increased $2.5 million due primarily to low sulfur natural gasoline
upgrade fees. This upgrade service began in late 2006.
     Outlook
 
    
    Based on year-to-date storage lease renewals, we expect 2007 storage revenues will
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 we remain on track to meet
the regulatory compliance requirements. Our forecast for 2007 is to workover approximately
57 caverns (both complete and partial) compared to 51 cavern workovers (38 complete and 13
partial) in 2006. Through September 30, 2007 we completed 33 workovers with another 19
caverns out of service for workovers.
 30




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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;
    
    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;
    
    Interest on our long-term debt; and
    
    Quarterly distributions to our unitholders.
 Discovery
  Total Distribution toDate of Distribution
    
    Members
    
    Our Share**1/30/07
    
    $
    9,000
    
    
    $
    3,6004/30/07
    
    $
    16,000
    
    
    $
    6,4006/22/07*
    
    $
    11,173
    
    
    $
    4,4697/30/07
    
    $
    9,000
    
    
    $
    3,60010/31/07
    
    $
    14,000
    
    
    $
    8,400
 
 *
    
    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 acquisition was effective July 1, 2007, we did not
begin to receive 60% of Discoverys distributions until October 2007.  Capital Contributions from Williams
   31




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##### Table of Contents




    
    $3.8 million for capital expenditures related to KDHE-related cavern compliance at our
Conway storage facilities. Approximately $2.0 million has been received through September
30, 2007.
    
    $1.2 million for our initial 40% share of Discoverys costs for marshland restoration
and repair or replacement of Paradis emission-control flare. Approximately $0.4 million
has been received through September 30, 2007.
    
    We expect all costs to repair the partial erosion of the Carbonate Trend pipeline
overburden caused by Hurricane Ivan in 2004 will be recoverable from insurance, but to the
extent they are not, we will seek indemnification under the omnibus agreement.
   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
    
    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.
 32




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##### Table of Contents



Maintenance
    
    Expansion
    
    TotalThrough
    
    
    
    
    
    Through
    
    
    
    
    
    ThroughCompany
    
    Total Year Estimate
    
    Sept. 30, 2007
    
    Total Year Estimate
    
    Sept. 30, 2007
    
    Total Year Estimate
    
    Sept. 30, 2007Conway
    
    $
    6.9
    
    
    $
    4.2
    
    
    $
    6.5
    
    
    $
    3.0
    
    
    $
    13.4
    
    
    $
    7.2Four
Corners
    
    
    21.5
    
    
    
    17.6
    
    
    
    18.9
    
    
    
    8.1
    
    
    
    40.4
    
    
    
    25.7Discovery 
100%
    
    
    2.7
    
    
    
    2.5
    
    
    
    33.8
    
    
    
    32.0
    
    
    
    36.5
    
    
    
    34.5
       33




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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.
 Nine months endedSeptember 30,2007
    
    2006(Thousands)Net cash provided by operating activities
    
    $
    129,065
    
    
    $
    116,521Net cash used by investing activities
    
    $
    (101,369
    )
    
    $
    (168,527
    )Net cash provided (used) by financing activities
    
    $
    (69,148
    )
    
    $
    83,298
 34




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##### Table of Contents




    
    $51.3 million increase in working capital excluding accrued interest. Cash provided by
working capital increased due primarily to $25.5 million in favorable accounts receivable
activity, which includes the following items in 2006:
 
    
    a $16.1 million increase, in 2006, in affiliate receivables as a result of our transition from
Williams cash management program to a stand-alone cash management program; and
    
    an increase of $6.8 million from accounts receivable due from an affiliate for
reimbursable compression projects.
  
    
    $2.9 million higher distributions related to the equity earnings of Discovery.
    Discovery  100 %
 Nine months endedSeptember 30,2007
    
    2006(Thousands)Net cash provided by operating activities
    
    $
    39,557
    
    
    $
    38,934Net cash used by investing activities
    
    
    (7,444
    )
    
    
    (9,486
    )Net cash used by financing activities
    
    
    (41,252
    )
    
    
    (23,609
    )
    35




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Price Risk
  Derivatives
  Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   36




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##### Table of Contents



Third-Quarter 2007 Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  37




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##### Table of Contents



Item 6. Exhibits
  ExhibitNumber
    
    Description+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. 38




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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. Timmermans Controller (Duly Authorized Officer and Principal Accounting Officer)  39




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description+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.