8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 22, 2006 (June 20, 2006)

Williams Partners L.P.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)	1-32599 (Commission File Number)	20-2485124 (IRS Employer Identification No.)
One Williams Center
Tulsa, Oklahoma		74172-0172
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (918) 573-2000

NOT APPLICABLE
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Consent of Ernst & Young LLP

Restated consolidated financial statements and notes

Restated audited balance sheet

Item 8.01 Other Events.

     On June 20, 2006, Williams Partners L.P. (the “Partnership”) acquired a 25.1 percent member interest in Williams Four Corners LLC (“Four Corners”) pursuant to an agreement with Williams Energy Services, LLC, Williams Field Services Group, LLC, Williams Field Services Company, LLC, Williams Partners Operating LLC and Williams Partners GP LLC, the general partner of the Partnership (the “General Partner”), for aggregate consideration of $360.0 million (approximately $355.8 million net of the General Partner’s capital contribution related to a concurrent common unit offering by the Partnership).

     Because Four Corners was an affiliate of The Williams Companies, Inc. (“Williams”) at the time of the acquisition, the transaction was between entities under common control, and has been accounted for at historical cost. Accordingly, the Partnership’s consolidated financial statements and notes have been restated to reflect the combined historical results of its investment in Four Corners throughout the periods presented. The Partnership accounts for the 25.1 percent interest in Four Corners as an equity investment and therefore does not consolidate its financial results.

     This current report on Form 8-K and the exhibits hereto (with the exception of the unaudited balance sheet of the General Partner as of June 30, 2006) are being filed as revisions to the Partnership’s annual report on Form 10-K for the year ended December 31, 2005 and its quarterly report on Form 10-Q for the three months ended March 31, 2006. Except as required to be restated, the information in this current report on Form 8-K and the exhibits hereto (with the exception of the unaudited balance sheet of the General Partner as of June 30, 2006) has not been updated and is not intended to provide supplemental financial or other information with respect to any period subsequent to March 31, 2006. To update such information, please read the Partnership’s quarterly report on Form 10-Q for the three and six months ended June 30, 2006 and the Partnership’s current reports on Form 8-K filed subsequent to March 31, 2006.

     The Partnership’s restated consolidated financial statements and notes are filed as Exhibit 99.1 hereto and are incorporated herein by reference. The restated audited balance sheet and notes of the General Partner as of December 31, 2005 and the unaudited balance sheet of the General Partner as of June 30, 2006 are filed as Exhibit 99.2 hereto and are incorporated herein by reference.

     The Partnership’s Selected Financial and Operational Data for the years ended December 31, 2005, 2004 and 2003 and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2005, 2004 and 2003 and the three months ended March 31, 2006 and 2005, restated to reflect the acquisition of the 25.1 percent member interest in Four Corners, are set forth below.

SELECTED FINANCIAL AND OPERATIONAL DATA

      The following table shows selected financial and operational data of the Partnership, Four Corners and Discovery Producer Services LLC (“Discovery”) for the periods and as of the dates indicated. We derived the financial data as of December 31, 2005 and 2004 and for the years ended December 31, 2005, 2004 and 2003 in the following table from, and that information should be read together with, and is qualified in its entirety by reference to, the restated consolidated financial statements and the accompanying notes filed as Exhibit 99.1 hereto. All other financial data are derived from our financial records.

      The table should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth below for information concerning significant trends in the financial condition and results of operations of the Partnership, Discovery and Four Corners.

		Year Ended December 31, (a)
		2005			2004			2003
		(Dollars in thousands, except per unit amounts)
Statement of Income Data:
Revenues		$	51,769		$	40,976		$	28,294
Costs and expenses			46,568			32,935			21,250
Operating income			5,201			8,041			7,044
Equity earnings — Four Corners			28,668			24,236			22,276
Equity earnings — Discovery			8,331			4,495			3,447
Impairment of investment in Discovery			—			(13,484	)(b)		—
Interest expense			(8,238	)		(12,476	)		(4,176	)
Interest income			165			—			—
Income before cumulative effect of change in accounting principle		$	34,127		$	10,812		$	28,591
Net income(c)		$	33,325		$	10,812		$	27,409
Income before cumulative effect of change in accounting principle per limited partner unit:(e)
	Common unit	$	0.49			N/A			N/A
	Subordinated unit	$	0.49			N/A			N/A
Net income per limited partner unit:(e)
	Common unit	$	0.44			N/A			N/A
	Subordinated unit	$	0.44			N/A			N/A
Balance Sheet Data (at period end):
Total assets		$	392,944		$	375,114		$	391,905
Property, plant and equipment, net			67,931			67,793			69,695
Investment in Four Corners			152,003			155,753			161,755
Investment in Discovery			150,260			147,281	(b)		156,269
Advances from affiliate			—	(d)		186,024			187,193
Partners’ capital			373,658			172,421			191,847
Cash Flow Data:
Cash distributions declared per unit		$	0.1484			N/A			N/A
Cash distributions paid per unit		$	0.1484			N/A			N/A

		Year Ended December 31, (a)
		2005		2004		2003
		(Dollars in thousands, except per unit amounts)
Operating Information:
Williams Partners L.P.:
	Conway storage revenues	$	20,290	$	15,318	$	11,649
	Conway fractionation volumes (bpd) — our 50%		39,965		39,062		34,989
	Carbonate Trend gathered volumes (MMBtu/d)		35,605		49,981		67,638
Four Corners — 100%:
	Gathered volumes (MMBtu/d)		1,521,507		1,559,940		1,577,181
	Processed volumes (MMBtu/d)		863,693		900,194		900,356
	Net liquids margin (cents/gallon)		37¢		29¢		17¢
Discovery Producer Services — 100%:
	Gathered volumes (MMBtu/d)		345,098		348,142		378,745
	Gross processing margin (¢/ MMbtu)		19¢		17¢		17¢

(a)	The years ended 2002 and 2001 have not been restated and therefore, have not been included in this presentation.
(b)	The $13.5 million impairment of our equity investment in Discovery in 2004 reduced the investment balance. See Note 6 of the Notes to Consolidated Financial Statements in Exhibit 99.1 hereto.
(c)	Our operations are treated as a partnership with each member being separately taxed on its ratable share of our taxable income. Therefore, we have excluded income tax expense from this financial information.
(d)	Prior to the closing of our initial public offering, Williams forgave the entire advances from affiliates balance.
(e)	The period of August 23, 2005 (the closing date of our initial public offering) through December 31, 2005.

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 restated consolidated financial statements and related notes included in Exhibit 99.1 of this Form 8-K.

     Unless the context clearly indicates otherwise, references in this report to “Williams Partners L.P.,” “we,” “our,” “us” or like terms, when used in the present tense, prospectively or for historical periods since August 23, 2005, refer to Williams Partners L.P. and its subsidiaries. References to “our predecessor,” or to “we,” “our,” “us” or like terms for historical periods prior to August 23, 2005, refer to the assets of Williams and its subsidiaries, which were contributed to us at the closing of our initial public offering on August 23, 2005. In either case, unless the context clearly indicates otherwise, references to “Williams Partners L.P.,” “we,” “our,” “us” or like terms generally include the operations of Discovery in which we own a 40 percent interest and Four Corners in which we own a 25.1 percent interest. When we refer to Discovery and Four Corners by name, we are referring exclusively to their respective businesses and operations.

General

      We are a Delaware limited partnership formed in February 2005 by Williams to own, operate and acquire a diversified portfolio of complementary energy assets. On August 23, 2005, we completed our initial public offering (“IPO”) of 5,000,000 common units at a price of $21.50 per unit. Proceeds from the sale of the units totaling $100.2 million were used to:

•  distribute $58.8 million to affiliates of Williams in part to reimburse Williams for capital expenditures relating to the assets contributed to us, including a gas purchase contract contributed to us;

•  provide $24.4 million to make a capital contribution to Discovery to fund an escrow account required in connection with the Tahiti pipeline lateral expansion project;

•  provide $12.7 million of additional working capital; and

•  pay $4.3 million of expenses associated with our IPO and related formation transactions.

      Additionally, at the closing of our IPO, the underwriters fully exercised their option to purchase 750,000 common units at the IPO price of $21.50 per unit from certain affiliates of Williams.

      Prior to the closing of our IPO, our assets were held by wholly owned subsidiaries of Williams. Upon the closing of our IPO, these Williams’ subsidiaries transferred the assets and the related liabilities to us. The following discussion includes the historical period prior to the closing of our IPO.

      On June 20, 2006, we acquired a 25.1 percent membership interest in Four Corners pursuant to an agreement with Williams Energy Services, LLC, Williams Field Services Group, LLC, Williams Field Services Company, LLC (“WFSC”), Williams Partners Operating LLC and our general partner for aggregate consideration of $360 million. Prior to closing, WFSC contributed to Four Corners its natural gas gathering, processing and treating assets in the San Juan Basin in New Mexico and Colorado. Because Four Corners was an affiliate of Williams at the time of the acquisition, the transaction was between entities under common control, and has been accounted for at historical cost. Accordingly, our consolidated financial statements and notes have been restated to reflect the combined historical results of our investment in Four Corners throughout the periods presented.

      We financed this acquisition with a combination of equity and debt. On June 20, 2006, we issued 6,600,000 common units at a price of $31.25 per unit. Additionally, at the closing, the underwriters fully exercised their option to purchase 990,000 common units at a price of $31.25 per unit. This offering yielded net proceeds of $227.1 million after the payment of underwriting discounts and commissions of $10.1 million, but before the payment of other offering expenses. On June 20, 2006, we also issued $150 million aggregate principal of unsecured 7.5 percent Senior Notes due 2011 under a private placement debt agreement. Proceeds from the issuance totaled $146.8 million (net of $3.2 million of related expenses).

Overview

      We are principally engaged in the business of gathering, transporting and processing natural gas and fractionating and storing natural gas liquids (“NGLs”). We manage our business and analyze our results of operations on a segment basis. Our operations are divided into two business segments:

•  Gathering and Processing. Our Gathering and Processing segment includes (1) our 25.1 percent ownership interest in Four Corners, (2) our 40 percent ownership interest in Discovery and (3) the Carbonate Trend gathering pipeline off the coast of Alabama. Four Corners owns a natural gas gathering system in the San Juan Basin in New Mexico and Colorado, three natural gas processing plants in Colorado and New Mexico and two natural gas treating plants in New Mexico. 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.

Executive Summary

      Overall our 2005 results of operations met or exceeded our expectations for these assets, although we faced unusual operating conditions the last few months of 2005. Four Corners’ net income was favorably impacted by strong per-unit margins throughout 2005 that more than offset decreases in NGL equity volumes. We expect unit margins in 2006 will remain strong in relation to historical averages. Discovery and Carbonate Trend were impacted by Hurricanes Dennis, Katrina and Rita, and Conway saw an impact from a delay in the peak usage of retail propane due to an unusually moderate winter. The hurricanes created an unfavorable impact for our traditional natural gas supplies but also provided an opportunity for Discovery to assist other producers and processors with stranded gas by offering available firm transportation capacity to them through two open seasons discussed below in “— Recent Events.” Discovery replaced some of its lost revenue while helping to bring the supply of natural gas back to the nation in advance of winter. We continue to monitor the longer-term effects these hurricanes had on Discovery’s traditional sources of natural gas, which might cause lower than expected gathered volumes from these sources in 2006. Conway experienced an increased demand for propane storage services as a result of warm early-winter temperatures. Our results were negatively impacted by unfavorable commodity price movements on operating supply inventory we held at Conway and by higher general and administrative costs. Our liquidity continues to meet our expectations. We have had no borrowings under our revolving credit facilities and have successfully met our minimum quarterly distributions. Our capitalization and relationship with Williams has us well-positioned to grow our partnership through both internal projects, including Discovery’s Tahiti expansion and acquisition transactions with Williams and other third parties.

Recent Events

      In July 2005, Discovery executed an agreement with three producers to construct an approximate 35-mile gathering pipeline lateral to connect Discovery’s existing pipeline system to these producers’ production facilities for the Tahiti prospect in the deepwater region of the Gulf of Mexico. The Tahiti pipeline lateral expansion will have a design capacity of approximately 200 million cubic feet per day, and its anticipated completion date is May 1, 2007. We expect the total construction cost of the Tahiti pipeline lateral expansion project to be approximately $69.5 million, of which our 40 percent share will be approximately $27.8 million. In September 2005, we made a $24.4 million contribution to Discovery to cover a substantial portion of the total expenditures attributable to our share of these costs. We funded this contribution with proceeds from our IPO. The omnibus agreement, executed in connection with our IPO, provides that Williams will reimburse us for our remaining share of $3.4 million once the escrow funds have been exhausted.

      On July 8, 2005, the Discovery and Carbonate Trend assets were temporarily shut down in anticipation of Hurricane Dennis. The Discovery and Carbonate Trend assets were off-line for four and five days,

respectively. We estimate the unfavorable impact of this hurricane on our 2005 net income was approximately $150,000 in lost revenue.

      On August 29, 2005, Hurricane Katrina struck the Gulf Coast area. In anticipation of the hurricane, the Discovery and Carbonate Trend assets were temporarily shut down on August 27, 2005. The Discovery assets were off-line for six days and then continued to experience lower throughput rates until being temporarily shut down for Hurricane Rita. The Carbonate Trend assets were off-line for 10 days and then experienced a gradual return to pre-hurricane throughput rates by September 19, 2005. On September 24, 2005, Hurricane Rita struck the Gulf Coast area. In anticipation of the hurricane, the Discovery assets, which were already at reduced throughput from Hurricane Katrina, were temporarily shut down on September 21, 2005. The Discovery assets were off-line for seven days and then continued to experience lower throughput rates through the end of the third quarter. Discovery’s net income was unfavorably impacted by an approximate loss of $2.3 million in revenue and $1.0 million in uninsured expenses. Discovery’s property insurance policy includes a $1.0 million deductible per occurrence. We estimate the unfavorable impact of Hurricanes Katrina and Rita on our 2005 net income was approximately $1.5 million due primarily to the impact of these hurricanes on Discovery’s results.

      In October 2005, Discovery conducted two expedited Federal Energy Regulatory Commission (“FERC”) open seasons for firm transportation to provide outlets for natural gas that was stranded following damage to third-party facilities during hurricanes Katrina and Rita. Both of these open seasons were for up to 250,000 million British Thermal Units per day (“MMBtu/d”). The first of these included the construction of a new receipt point at Texas Eastern Transmission Company’s (“TETCO”) Larose compressor station in Lafourche Parish, Louisiana. The second is via an existing interconnection to Tennessee Gas Pipeline’s (“TGP”) Line 500 in Terrebonne Parish, Louisiana. We began receiving additional incremental volumes from these receipt points in November and December 2005 and continued throughput through the first quarter of 2006. Shippers reimbursed Discovery for the majority of the capital necessary to establish these connections. We estimate the favorable impact of these open seasons on our 2005 net income was approximately $4.6 million in increased revenue less related expenses.

      In May 2006, Williams replaced its $1.275 billion secured credit facility with a $1.5 billion unsecured credit agreement. The new facility contains similar terms and covenants as the prior facility, but contains additional restrictions on asset sales, certain subsidiary debt and sale-leaseback transactions. The new credit agreement is available for borrowings and letters of credit and will continue to allow us to borrow up to $75 million for general partnership purposes, including acquisitions, but only to the extent that sufficient amounts remain unborrowed by Williams and its other subsidiaries. Please read “— Financial Condition and Liquidity — Credit Facilities” for more information.

How We Evaluate Our Operations

      Our management uses a variety of financial and operational measures to analyze our segment performance, including the performance of Four Corners and Discovery. These measurements include:

•  Four Corners’ gathering and processing volumes;

•  Four Corners’ net liquids margin;

•  Discovery’s pipeline throughput volumes;

•  Discovery’s gross processing margins;

•  Conway’s fractionation volumes;

•  Conway’s storage revenues; and

•  operating and maintenance expenses.

       Four Corners

      Gathering Volumes. The gathering volumes on the Four Corners system are an important component of maximizing Four Corners’ profitability. Four Corners gathers approximately 37 percent of the San Juan Basin’s natural gas production at approximately 6,400 receipt points under mostly fee-based contracts. Four Corners’ gathering volumes from existing wells connected to our pipeline will naturally decline over time. Accordingly, to maintain or increase gathering volumes Four Corners must continually obtain new supplies of natural gas.

      Processing Volumes. The volumes processed at the Ignacio, Kutz and Lybrook natural gas processing plants are an important measure of Four Corners’ ability to maximize the profitability of these facilities. Four Corners gathers and processes natural gas under keep-whole, percent-of-liquids, fee-based and fee-based and keep-whole contracts. Four Corners’ processing volumes are largely dependent on the volume of natural gas gathered on the Four Corners’ system. Please read “—Our Operations—Gathering and Processing Segment.”

      Net Liquids Margin. The net liquids margin is an important measure of Four Corners’ ability to maximize the profitability of its processing operations. Liquids margin is derived by deducting the cost of shrink replacement gas and fuel from the revenue Four Corners receives from the sale of its NGLs. Shrink replacement gas refers to natural gas that is required to replace the Btu content lost when NGLs are extracted from the natural gas stream. Under certain agreement types, Four Corners receives NGLs as compensation for processing services provided to its customers as discussed in “— Our Operations — Gathering and Processing Segment”. The net liquids margin will either increase or decrease as a result of a corresponding change in the relative market prices of NGLs and natural gas.

       Discovery

      Pipeline Throughput Volumes. We view throughput volumes on Discovery’s pipeline system and our Carbonate Trend pipeline as an important component of maximizing our profitability. We gather and transport

natural gas under fee-based contracts. Revenue from these contracts is derived by applying the rates stipulated to the volumes transported. Pipeline throughput volumes from existing wells connected to our pipelines will naturally decline over time. Accordingly, to maintain or increase throughput levels on these pipelines and the utilization rate of Discovery’s natural gas processing plant and fractionator, we and Discovery must continually obtain new supplies of natural gas. Our ability to maintain existing supplies of natural gas and obtain new supplies are impacted by (1) the level of workovers or recompletions of existing connected wells and successful drilling activity in areas currently dedicated to our pipelines and (2) our ability to compete for volumes from successful new wells in other areas. We routinely monitor producer activity in the areas served by Discovery and Carbonate Trend and pursue opportunities to connect new wells to these pipelines.

      Gross Processing Margins. We view total gross processing margins as an important measure of Discovery’s ability to maximize the profitability of its processing operations. Gross processing margins include revenue derived from:

•  the rates stipulated under fee-based contracts multiplied by the actual MMBtu volumes;

•  sales of NGL volumes received under percent-of-liquids contracts for Discovery’s account; and

•  sales of natural gas volumes that are in excess of operational needs.

      The associated costs, primarily shrink replacement gas and fuel gas, are deducted from these revenues to determine processing gross margin. In certain prior years, such as 2003, we generated significant revenues from the sale of excess natural gas volumes. However, in response to a final rule issued by FERC in 2004, we expect that Discovery will generate only minimal revenues from the sale of excess natural gas in the future.

      Discovery’s mix of processing contract types and its operation and contract optimization activities are determinants in processing revenues and gross margins. Please read “— Our Operations — Gathering and Processing Segment.”

      Conway

      Fractionation Volumes. We view the volumes that we fractionate at the Conway fractionator as an important measure of our ability to maximize the profitability of this facility. We provide fractionation services at Conway under fee-based contracts. Revenue from these contracts is derived by applying the rates stipulated to the volumes fractionated.

      Storage Revenues. Our storage revenues are derived by applying the average demand charge per barrel to the total volume of storage capacity under contract. Given the nature of our operations, our storage facilities have a relatively higher degree of fixed verses variable costs. Consequently, we view total storage revenues, rather than contracted capacity or average pricing per barrel, as the appropriate measure of our ability to maximize the profitability of our storage assets and contracts. Total storage revenues include the monthly recognition of fees received for the storage contract year and shorter-term storage transactions.

       Operating and Maintenance Expenses

      Operating and maintenance expenses are costs associated with the operations of a specific asset. Direct labor, fuel, utilities, contract services, materials, supplies, insurance and ad valorem taxes comprise the most significant portion of operating and maintenance expenses. Other than fuel, these expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate depending on the activities performed during a specific period. For example, plant overhauls and turnarounds result in increased expenses in the periods during which they are performed. We include fuel cost in our operating and maintenance expense, although it is generally recoverable from our customers in our NGL Services segment. As noted above, fuel costs in our Gathering and Processing segment are a component in assessing our gross processing margins.

      Additionally in the course of providing gathering processing and treating services to its customers. Four Corners realizes over and under deliveries of its customers products that are reflected in its operating and maintenance expense as product imbalance gains and losses. Four Corners monitors these gains and losses to determine whether they are within industry standards and determine the impact of such gains and losses on Four Corner’s results of operations.

      In addition to the foregoing measures, we also review our general and administrative expenditures, substantially all of which are incurred through Williams. In an omnibus agreement, executed in connection with our IPO, Williams agreed to provide a five-year partial credit for general and administrative expenses incurred on our behalf. The amount of this credit in 2005 was $3.9 million, which was pro rated for the period

from the closing of our IPO through year end. The pro rated amount totaled $1.4 million. The amount of the credit will be $3.2 million in 2006 and will decrease by approximately $800,000 in each subsequent year.

      We record total general and administrative costs, including those costs that are subject to the credit by Williams, as an expense, and we record the credit as a capital contribution by our general partner. Accordingly, our net income does not reflect the benefit of the credit received from Williams. However, the cost subject to this credit is allocated entirely to our general partner. As a result, the net income allocated to limited partners on a per-unit basis reflects the benefit of this credit.

Our Operations

Gathering and Processing Segment

      Our Gathering and Processing segment consists of our interests in Four Corners and Discovery and our Carbonate Trend Pipeline. These assets generate revenues by providing natural gas gathering, transporting and processing and treating services and 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. As a result, this equity investment, which can only be presented in one segment, is considered part of the Gathering and Processing segment. For additional information on these activities, and the assets and activities described below, please read “Business and Properties — Narrative Description of Business — Gathering and Processing The Discovery Assets” in our annual report on Form 10-K for the year ended December 31, 2005 (“2005 Form 10-K”).

Gathering and Transportation Contracts

      We generate gathering and transportation revenues by applying the set tariff or contracted rate to the contractually-defined volumes of gas gathered or transported. Four Corners gathers natural gas under mostly fee-based contracts. Revenue from these contracts is derived by applying the rates stipulated to the volumes gathered. Most of Four Corners’ gathering contracts include escalation clauses that provide for an annual escalation based on an inflation-sensitive index. One significant gathering agreement is escalated based on changes in the average price of natural gas. Discovery’s mainline and its FERC-regulated laterals generate revenues through two types of arrangements — firm transportation service and traditional interruptible transportation service. Under the firm transportation arrangement, producers are required to dedicate reserves for the life of the lease, but pay no reservation fees for firm capacity. Under the interruptible transportation arrangement, no reserve dedication is required. Customers with firm transportation arrangements are entitled to a higher priority of service, in the case of a full pipeline, than customers who contract for interruptible transportation service. Firm transportation services represent the majority of the revenues from Discovery’s FERC-regulated business. Discovery also offers a third type of arrangement, traditional firm service with reservation fees, but none of Discovery’s customers currently contract for this type of transportation service.

      Discovery’s maximum regulated rate for mainline transportation is scheduled to decrease in 2008. At that time, Discovery will be required to reduce its mainline transportation rate on all of its contracts that have rates above the new reduced rate. This could reduce the revenues generated by Discovery. Discovery may elect to file a rate case with FERC seeking to alter this scheduled reduction. However, if filed, we cannot assure you that a rate case would be successful in even partially preventing the rate reduction. Please read “Risk Factors - Risks Inherent in Our Business - Discovery’s interstate tariff rates we subject to review and possible adjustment by federal regulators, which could have a material adverse effect on our business and operating results. Moreover, because Discovery is a non-corporate entity, it may be disadvantaged in calculating its cost of service for rate-making purposes” and “Business and Properties — Narrative Description of Business — FERC Regulation” in our 2005 Form 10-K.

      Carbonate Trend’s three contracts have terms tied to the life of the customer’s lease. The actual terms of these contracts will vary depending on the productive life of the natural gas reserves underlying these leases. However, the per-unit gathering fee associated with two of our three Carbonate Trend gathering contracts was negotiated on a bundled basis that includes transportation along a segment of Transcontinental Gas Pipe Line Company, or Transco, a wholly owned subsidiary of Williams. The gathering fees we receive are dependent upon whether our customer elects to utilize this Transco capacity. If a customer elects to use the Transco capacity, our gathering fee is determined by subtracting the Transco tariff from the total negotiated fee and generally results in a rate lower than would be realized if the customer elects not to utilize Transco’s capacity. The rate associated with Transco capacity is based on a FERC tariff that is subject to change. Accordingly, if the Transco rate increases, our gathering fees will be reduced. The customers with these bundled contracts

must make an annual election to receive this capacity. Both customers elected to use this capacity during 2004 and only one elected to use this capacity in 2005 and 2006.

      The gathering and transportation revenues that we generate under fee-based contracts are not directly affected by changing commodity prices. However, to the extent a sustained decline in commodity prices realized by our customers results in a decline in the producers’ future drilling and development activities, our revenues from these contracts could be reduced in the long term.

Four Corners’ Processing Contracts

     Four Corners’ natural gas processing plants generate revenues using the following types of contracts:

•  Keep-whole. Under keep-whole contracts, Four Corners (1) processes natural gas produced by customers, (2) retains some or all of the extracted NGLs as compensation for its services, (3) replaces the Btu content of the retained NGLs that were separated during processing with natural gas it purchases, also known as shrink replacement gas, and (4) delivers an equivalent Btu content of natural gas to customers at the plant outlet. Four Corners, in turn, sells the retained NGLs to a subsidiary of Williams, which serves as a marketer for those NGLs at market prices.

•  Percent-of-liquids. Under percent-of-liquids processing contracts, Four Corners (1) processes natural gas produced by customers, (2) delivers to customers an agreed-upon percentage of the NGLs extracted (3) retains a portion of the extracted NGLs as compensation for its services and (4) delivers natural gas to customers at the plant in processing outlet. Under this type of contract, there is no requirement for Four Corners to replace the Btu content of the retained NGLs that were extracted during processing. Four Corners sells the retained NGLs to a subsidiary of Williams, which serves as a marketer for those NGLs at market prices.

•  Fee-based. Under fee-based contracts, Four Corners receives revenue based on the volume of natural gas processed and the per-unit fee charged, and Four Corners retains none of the extracted NGLs.

•  Fee-based and keep-whole. These contracts have both a per-unit fee component and a keep-whole component. The relative proportions of the fee component and the keep-whole component vary from contract to contract, with the keep-whole component never consisting of more than 50 percent of the total extracted NGLs.

      Under Four Corners’ keep-whole and percent-of-liquids contracts, revenues either increase or decrease as a result of a corresponding change in the market prices of NGLs. Four Corners charges a fee for more than 95 percent of the gathering and treating services it performs, as well as for approximately 48 percent of the natural gas it processes. As a result, the majority of the revenues generated by these services are not directly affected by changing commodity prices. However, to the extent a sustained decline in commodity prices realized by the customers of Four Corners results in a decline in their future drilling and development activities and the volumes of gas produced, Four Corners’ revenues would be reduced. The remaining terms for the major Four Corners contracts range between three and ten years.

Discovery’s Processing and Fractionation Contracts

      Fee-based contracts. Discovery generates fee-based fractionation revenues based on the volumes of mixed NGLs fractionated and the per-unit fee charged, which is subject to adjustment for changes in certain fractionation expenses, including natural gas fuel and labor costs. Some of Discovery’s natural gas processing contracts are also fee-based contracts under which revenues are generated based on the volumes of natural gas processed at its natural gas processing plant. As discussed below, Discovery also processes natural gas under percent-of-liquids contracts.

      The processing revenues that Discovery generates under fee-based contracts are not directly affected by changing commodity prices. However, to the extent a sustained decline in commodity prices realized by our customers results in a decline in the producers’ future drilling and development activities, our revenues from these contracts could be reduced due to long-term development declines.

      Percent-of-liquids contracts. Under percent-of-liquids contracts, Discovery (1) processes natural gas for customers, (2) delivers to customers an agreed-upon percentage of the NGLs extracted in processing and (3) retains a portion of the extracted NGLs. Discovery generates revenue by selling these retained NGLs to Williams at market prices. Some of Discovery’s percent-of-liquids contracts have a “bypass” option. Under this option, customers may elect not to process, or bypass, their natural gas on a monthly basis, in which case, Discovery retains a portion of the customers’ natural gas in lieu of NGLs as a fee. Discovery uses its retained natural gas to partially offset the amount of natural gas Discovery must purchase in the market for shrink replacement gas and natural gas consumed as fuel. Discovery may choose to process natural gas that a customer has elected to bypass, but it then must deliver natural gas with an equivalent Btu content to the customer. Discovery would not elect to process bypassed gas if market conditions posed the risk of negative processing margins. Please read “— Operation and Contract Optimization.”

      Under Discovery’s percent-of-liquids contracts, revenues either increase or decrease as a result of a corresponding change in the market prices of NGLs. For contracts with a bypass option, and depending upon whether the customer elects the bypass election, Discovery’s revenues would either increase or decrease as a result of a corresponding change in the relative market prices of NGLs and natural gas.

      Discovery is also a party to a small number of “keep-whole” gas processing arrangements. Under these arrangements, a processor retains NGLs removed from a customer’s natural gas stream but must deliver gas with an equivalent Btu content to the customer, either from the processor’s inventory or through open market purchases. A rise in natural gas prices as compared to NGL prices can cause the processor to suffer negative margins on keep-whole arrangements. The natural gas associated with Discovery’s keep-whole arrangements has a low NGL content. As a result, this gas does not require processing to be shipped on downstream pipelines. Consequently, under unfavorable market conditions, Discovery may earn little or no margin on these arrangements, but is not exposed to negative processing margins. Discovery does not intend to enter into additional keep-whole arrangements in the future that would represent a material amount of processing volumes.

      Substantially all of Discovery’s gas gathering, transportation, processing and fractionation contracts have terms that expire at the end of the customer’s natural resource lease. The actual terms of these contracts will vary depending on life of the natural gas reserves underlying these leases. As a result of Discovery’s current contract mix, Discovery takes title to approximately one-half of the mixed NGL volumes leaving its natural gas processing plant. A Williams subsidiary serves as a marketer for these NGLs and, under the terms of its agreement with Discovery, purchases substantially all of Discovery’s NGLs for resale to end users. As a result,

a significant portion of Discovery’s revenues are reported as affiliate revenues even though Williams is not a producer that supplies the Discovery pipeline system with any volumes of natural gas. If the arrangement with the Williams subsidiary were terminated, we believe that Discovery could contract with a third party marketer or perform its own marketing services.

Operation and Contract Optimization

      Long-haul natural gas pipelines, generally interstate pipelines that serve end use markets, publish specifications for the maximum NGL content of the natural gas that they will transport. Normally, NGLs must be removed from the natural gas stream at a gas processing facility in order to meet these pipeline specifications. It is common industry practice, however, to blend some unprocessed gas with processed gas to the extent that the combined gas stream is still able to meet the pipeline specifications at the point of injection into the long-haul pipeline.

      Although it is typically profitable for producers to separate NGLs from their natural gas streams, there can be periods of time in which the relative value of NGL market prices to natural gas market prices may result in negative processing margins and, as a result, lack of profit from NGL extraction. Because of this margin risk, producers are often willing to pay for the right to bypass the gas processing facility if the circumstances permit. Owners of gas processing facilities may often allow producers to bypass their facilities if they are paid a “bypass fee.” The bypass fee helps to compensate the gas processing facility for the loss of processing volumes.

      Under Discovery’s contracts that include a bypass option, Discovery’s customers may exercise their option to bypass the gas processing plant. Producers with these contracts notify Discovery of their decision to bypass prior to the beginning of each month. For the natural gas volumes that producers have chosen to bypass, Discovery evaluates current commodity prices and then decides whether it will process the gas for its own account and retain the separated NGLs for sale to third parties. The customer pays a bypass fee regardless of whether or not Discovery decides to process the gas for its own account. Discovery’s decision is determined by the value of the NGLs it will separate during the month compared to the cost of the replacement volume of natural gas it must purchase to keep the producer whole.

      By providing flexibility to both producers and gas processors, bypass options can enhance both parties’ profitability. Discovery manages its operations given its contract portfolio, which contains a proportion of contracts with this option that is appropriate given current and expected future commodity market conditions.

NGL Services Segment

      We generate revenues by providing NGL fractionation and storage services at our facilities near Conway, Kansas, using various fee based contractual arrangements where we receive a fee or fees based on actual or contracted volumetric measures.

Fractionation Contracts

      The fee-based fractionation contracts at our Conway facility generate revenues based on the volumes of mixed NGLs fractionated and the per-unit fee charged. The per-unit fee is generally subject to adjustment for changes in certain operating expenses, including natural gas, electricity and labor costs, which are the principal variable costs in NGL fractionation. As a result, we are generally able to pass through increases in those operating expenses to our customers. However, under one of our fractionation contracts, there is a cap on the per-unit fee and, under current natural gas market conditions, we are not able to pass through the full amount of increases in variable expenses to this customer. In order to mitigate the fuel price risk with respect to our purchases of natural gas needed to perform under this contract, upon the closing of our IPO offering in August 2005, Williams transferred to us a contract for the purchase of a sufficient quantity of natural gas from a wholly owned subsidiary of Williams at a fixed price to satisfy our fuel requirements under this fractionation contract. Williams paid the full costs associated with entering into this contract prior to assigning the contract to us upon closing of our IPO. The fair value of this gas purchase contract was recorded as an equity contribution to us by Williams. This gas purchase contract will terminate on December 31, 2007 to correspond

with the expected termination of the related fractionation agreement. Pursuant to the terms of this agreement, we provided notice of termination to this customer in July 2005. If we are unable to negotiate a new agreement with this customer upon such termination, we believe that we could contract with other potential customers to replace a significant portion of these volumes.

      Two contracts with remaining terms of approximately three and five years account for most of our fractionation revenues. The revenues we generate under fractionation contracts at our Conway facility generally are not directly affected by changing commodity prices. However, to the extent a sustained decline in commodity prices received by our customers results in a decline in their production volumes, our revenues from these contracts could be reduced. One of our customers has the contractual right, on a month-to-month basis, to deliver its mixed NGLs elsewhere. Its decision on whether to ship its products to the Mid-Continent region or another region depends on supply and demand in the respective regions and the current price being paid for fractionated products in each region.

Storage Contracts

      Substantially all our storage contracts are on a firm basis, pursuant to which our customers pay a demand charge for a contracted volume of storage capacity, including injection and withdrawal rights. The majority of our storage revenues are from three contracts with remaining terms between four and fourteen years. The terms of our remaining storage contracts are typically one year or less. In addition, we also enter into contracts for fungible product storage in increments of six months, three months and one month.

      For storage contracts of one year or less, we require our customers to remit the full contract price at the time the contract is signed, which reduces our overall credit risk. Most of our contracts of one year or less are on a fixed price basis. We base our longer-term contracts on a percentage of our published price of storage in our Conway facilities and adjust these prices annually.

      We offer our customers four types of storage contracts: single product fungible, two product fungible, multi-product fungible and segregated product storage. In addition to the fees we charge for contracted storage, we also receive fees for overstorage. Overstorage is all barrels held in a customer’s inventory in excess of that customer’s contractual storage rights, calculated on a daily basis.

      Because we typically contract for periods of one year or longer, our business is less susceptible to seasonal variations. However, spot and future NGL market prices can influence demand for storage. When the market for propane and other NGLs is in backwardation, the demand for storage capacity of our Conway facilities may decrease. While this would not impact our long-term leases of storage capacity, our customers could become less likely to enter into short-term storage contracts.

Operating Supply Management

      We also generate revenues by managing product imbalances at our Conway facilities. In response to market conditions, we actively manage the fractionation process to optimize the resulting mix of products. Generally, this process leaves us with a surplus of propane volumes and a deficit of ethane volumes. We sell the surplus propane and make up the ethane deficit through open-market purchases. We refer to these transactions as product sales and product purchases. In addition, product imbalances may arise due to measurement variances that occur during the routine operation of a storage cavern. These imbalances are realized when storage caverns are emptied. We are able to sell any excess product volumes for our own account, but must make up product deficits. The flexibility we enjoy as operator of the storage facility allows us to manage the economic impact of deficit volumes by settling deficit volumes either from our storage inventory or through opportunistic open-market purchases.

      Historically, we effected these product sales and purchases with third parties. However, in December of 2004, we began to effect these purchases and sales with a subsidiary of Williams. If this arrangement with the Williams subsidiary were terminated, we believe we could once again transact with third parties.

Critical Accounting Policies and Estimates

      Our financial statements reflect the selection and application of accounting policies that require management to make significant estimates and assumptions. The selection of these policies has been discussed with the Audit Committee. We believe that the following are the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

Impairment of Long-Lived Assets and Investments

      We evaluate our long-lived assets and investments for impairment when we believe events or changes in circumstances indicate that we may not be able to recover the carrying value of certain long-lived assets or that the decline in value of an investment is other-than-temporary.

      During 2004, we performed an impairment review of our 40 percent equity investment in Discovery because of Williams’ planned purchase of an additional interest in Discovery at an amount below our current carrying value. We estimated the fair value of our investment based on a probability-weighted analysis that considered a range of expected future cash flows and earnings, EBITDA multiples and the distribution yields for master limited partnerships (“MLP”). Based upon our analysis we concluded that our investment in Discovery experienced an other-than-temporary decline in value. As a result, we recorded an 8 percent, or $13.5 million, impairment of this investment to its estimated fair value at December 31, 2004 (see Note 6 of Notes to Consolidated Financial Statements in Exhibit 99.1 hereto). Our computations utilized judgments and assumptions in the following areas:

•  estimated future volumes and rates;

•  the net present value of the expected future cash flows;

•  potential proceeds from a sale to an existing MLP based on an acquirer’s estimated distribution and earnings impact; and

•  expected proceeds from our planned initial public offering.

      Our projections are highly sensitive to changes in the above assumptions. The estimated cash flows from the various scenarios ranged from approximately $28.0 million above to approximately $20.0 million below our estimated fair value at December 31, 2004.

Accounting for Asset Retirement Obligations

      We record asset retirement obligations for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset in the period in which it is incurred if a reasonable estimate of fair value can be made. At December 31, 2005, we have an accrued asset retirement obligation liability of $762,000 for estimated retirement costs associated with the abandonment of our Conway underground storage caverns and brine ponds in accordance with Kansas Department of Health and Environment (“KDHE”) regulations. This estimate is based on the assumption that the abandonment occurs in 50 years. If this assumption were changed to 30 years, the recorded asset retirement obligation would increase by approximately $2.6 million. Our estimate utilizes judgments and assumptions regarding the costs to abandon a well bore and the timing of abandonment. Please read Note 7 of Notes to Consolidated Financial Statements in Exhibit 99.1 hereto.

Environmental Remediation Liabilities

      We record liabilities for estimated environmental remediation liabilities when we assess that a loss is probable and the amount of the loss can be reasonably estimated. At December 31, 2005, we have an accrual for estimated environmental remediation obligations of $5.4 million. This remediation accrual is revised, and our associated income is affected, during periods in which new or different facts or information become known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss. We base liabilities for environmental remediation upon our assumptions and estimates regarding what remediation work and post-remediation monitoring will be required and the costs of those efforts, which we develop from information obtained from outside consultants and from discussions with the applicable

governmental authorities. As new developments occur or more information becomes available, it is possible that our assumptions and estimates in these matters will change. Changes in our assumptions and estimates or outcomes different from our current assumptions and estimates could materially affect future results of operations for any particular quarter or annual period. During 2004, we purchased an insurance policy covering some of our environmental liabilities. Please read “— Environmental” and Note 13 of Notes to Consolidated Financial Statements in Exhibit 99.1 hereto for further information.

Results of Operations

Consolidated Overview

      The following table and discussion is a summary of our consolidated results of operations for the three years ended December 31, 2005 and the three months ended March 31, 2006 and 2005. The results of operations by segment are discussed in further detail following this consolidated overview discussion.

											Three Months Ended
		Years Ended December 31,									March 31,
		2005			2004			2003			2006			2005
		(In thousands)
Revenues		$	51,769		$	40,976		$	28,294		$	17,063		$	11,369
Costs and expenses:
	Operating and maintenance expense		25,111			19,376			13,960			7,691			5,728
	Product cost		11,821			6,635			1,263			5,723			2,735
	Depreciation and accretion		3,619			3,686			3,707			900			905
	General and administrative expense		5,323			2,613			1,813			1,948			706
	Taxes other than income		700			716			640			207			192
	Other, net		(6	)		(91	)		(133	)		—			—
Total costs and expenses			46,568			32,935			21,250			16,469			10,266
Operating income			5,201			8,041			7,044			594			1,103
Equity earnings — Four Corners			28,668			24,236			22,276			8,387			6,499
Equity earnings — Discovery			8,331			4,495			3,447			3,781			2,212
Impairment of investment in Discovery			—			(13,484	)		—			—			—
Interest expense			(8,238	)		(12,476	)		(4,176	)		(236	)		(3,004	)
Interest income			165			—			—			70			—
Income before cumulative effect of change in accounting principle			34,127			10,812			28,591			12,596			6,810
Cumulative effect of change in accounting principle			(802	)		—			(1,182	)		—			—
Net income		$	33,325		$	10,812		$	27,409			12,596		$	6,810

Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005

      Revenues increased $5.7 million, or 50 percent, due primarily to higher revenues in our NGL Services segment reflecting higher fractionation and storage revenues and increased product sales volumes. These increases are discussed in detail in “— Results of Operations — NGL Services.”

      Operating and maintenance expense increased $2.0 million, or 34 percent, due primarily to our NGL Services segment where fuel and power costs and the number of cavern workover projects increased, partially offset by a decrease in product imbalance adjustments.

      Product cost increased $3.0 million, or 109 percent, directly related to the increased product sales volumes discussed above.

      General and administrative expense increased $1.2 million, or 176 percent, due primarily to the increased costs of being a publicly traded partnership. These costs included $0.4 million for audit, tax return preparation and director fees, $0.3 million for charges allocated by Williams for accounting, legal, and other support, and $0.3 million for conflict committee activity associated with our proposed acquisition of an interest in Four Corners.

      Operating income decreased $0.5 million, or 46 percent, due primarily to higher general and administrative expense and higher operating and maintenance expense, partially offset by higher fractionation and storage revenues from our NGL Services segment.

      Equity earnings from Four Corners increased $1.9 million, or 29 percent. This increase is discussed in detail in “— Results of Operations — Gathering and Processing.”

      Equity earnings from Discovery increased $1.6 million, or 71 percent. This increase is discussed in detail in “— Results of Operations — Gathering and Processing.”

      Interest expense decreased $2.8 million, or 92 percent, due to the forgiveness of the advances from Williams to our predecessor in conjunction with the closing of our IPO on August 23, 2005, slightly offset by the commitment fees on our $75 million borrowing capacity under Williams’ credit agreement and our $20 million working capital revolving credit facility with Williams.

Year Ended December 31, 2005 vs. Year Ended December 31, 2004

      Revenues increased $10.8 million, or 26 percent, due primarily to higher revenues in our NGL Services segment reflecting increased product sales volumes and higher storage revenues, slightly offset by lower revenue in our Gathering and Processing segment due to Hurricanes Katrina and Rita and the 2004 recognition of a $950,000 settlement of a contractual volume deficiency provision.

      Operating and maintenance expense increased $5.7 million, or 30 percent, due primarily to larger product imbalance valuation adjustments and higher fuel and power costs recognized by our NGL Services segment in 2005 as compared to 2004.

      Product cost increased $5.2 million, or 78 percent, directly related to the increase in product sales volumes in our NGL Services segment.

      General and administrative expense increased $2.7 million, or 104 percent primarily to the increased costs of being a publicly traded partnership. These costs included $1.1 million for audit fees, tax return preparation, director fees, and registration and transfer agent fees, $0.7 million for direct and specific charges allocated, by Williams, for accounting, legal, and other support, $0.6 million for business development, and $0.3 million for other various expenses.

      Operating income decreased $2.8 million, or 35 percent, due primarily to higher operating and maintenance expense in our NGL Services segment, higher general and administrative expenses and lower revenues in our Gathering and Processing segment, partially offset by higher storage revenues in our NGL Services segment.

      Equity earnings from Four Corners increased $4.4 million, or 18 percent. This increase is discussed in detail in “— Results of Operations — Gathering and Processing.”

      Equity earnings from Discovery increased $3.8 million, or 85 percent. This increase is discussed in detail below under “— Results of Operations — Gathering and Processing.”

      The impairment of our investment in Discovery is the result of our analysis pursuant to which we concluded that we had experienced an other-than-temporary decline in the value of our investment in Discovery as described above in “— Critical Accounting Policies and Estimates — Impairment of Long-Lived Assets and Investments.”

      Interest expense decreased $4.2 million, or 34 percent, due primarily to the forgiveness of the advances from Williams to our predecessor in conjunction with the closing of our IPO on August 23, 2005.

      The cumulative effect of change in accounting principle of $0.8 million in 2005 relates to our December 31, 2005 adoption of Financial Accounting Standards Board Interpretation (“FIN”) No. 47. Please read Note 7 of Notes to Consolidated Financial Statements in Exhibit 99.1 hereto.

Year Ended December 31, 2004 vs. Year Ended December 31, 2003

      Revenues increased $12.7 million, or 45 percent, due mainly to higher revenues in our NGL Services segment, reflecting higher product sales volumes and storage rates.

      Operating and maintenance expense increased $5.4 million, or 39 percent, due primarily to increased costs to comply with KDHE requirements at NGL Services’ Conway facilities. Product costs increased $5.4 million, from $1.3 million, due to the increase in product sales.

      General and administrative expense increased $0.8 million, or 44 percent, due primarily to an increase in allocated general and administrative expenses from Williams reflecting increased corporate overhead costs within the Williams organization. These increased costs related to various corporate initiatives and Sarbanes-Oxley Act compliance efforts within Williams.

      Equity earnings from Four Corners increased $2.0 million, or 9 percent. This increase is discussed in detail in “— Results of Operations — Gathering and Processing.”

      Equity earnings from Discovery increased $1.0 million, or 30 percent. This increase is discussed in detail in “— Results of Operations — Gathering and Processing.”

      The impairment of our investment in Discovery is the result of our analysis pursuant to which we concluded that we had experienced an other-than-temporary decline in the value of our investment in Discovery as described above in “— Critical Accounting Policies and Estimates — Impairment of Long-Lived Assets and Investments.”

      Interest expense increased $8.3 million, from $4.2 million, due primarily to the cash advanced by Williams in December 2003 to fund our predecessor’s $101.6 million share of a cash call by Discovery to repay its outstanding debt.

      The cumulative effect of change in accounting principle of $1.2 million in 2003 relates to our January 1, 2003 adoption of Statement of Financial Accounting Standard, or SFAS, No. 143, “Accounting for Asset Retirement Obligations.” Please read Note 7 of Notes to Consolidated Financial Statements in Exhibit 99.1 hereto.

Outlook for 2006

      We have provided separate Outlook discussions in our Gathering and Processing and NGL Services “Results of Operations” sections.

      Additionally, we expect our interest expense to increase by approximately $6.3 million for the interest on our issuance of $150 million Senior Notes issued in conjunction with our acquisition of a 25.1 percent interest in Four Corners, which was completed on June 20, 2006.

Results of Operations — Gathering and Processing

      The Gathering and Processing segment includes (1) the Carbonate Trend gathering pipeline, (2) our 25.1 percent ownership interest in Four Corners and (3) our 40 percent ownership interest in Discovery.

									Three Months
									Ended
		Years Ended December 31,							March 31,
		2005		2004			2003		2006		2005
		(In thousands)
Segment revenues		$	3,515	$	4,833		$	5,513	$	733	$	880
Costs and expenses:
	Operating and maintenance expense		714		572			379		242		107
	Depreciation		1,200		1,200			1,200		300		300
	General and administrative expense — direct		2		—			—		2		—
Total costs and expenses			1,916		1,772			1,579		544		407
Segment operating income			1,599		3,061			3,934		189		473
Equity earnings — Four Corners			28,668		24,236			22,276		8,387		6,499
Equity earnings — Discovery			8,331		4,495			3,447		3,781		2,212
Impairment of investment in Discovery			—		(13,484	)		—		—		—
Segment profit		$	38,598	$	18,308		$	29,657	$	12,357	$	9,184

Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005

      Carbonate Trend’s revenues decreased $147,000, or 17 percent, due primarily to a 20 percent decline in average daily gathered volumes between 2006 and 2005 caused by normal reservoir depletion.

      Operating and maintenance expense increased $135,000, or 126 percent, due to $44,000 in increased costs for inhibitor chemicals and internal pipeline corrosion inspection, and $91,000 related to increased insurance costs.

      Segment operating income decreased $284,000, or 60 percent, due primarily to the items discussed above.

Year Ended December 31, 2005 vs. Year Ended December 31, 2004

      Carbonate Trend’s revenues decreased $1.3 million, or 27 percent, due primarily to a 29 percent decline in average daily gathered volumes between 2005 and 2004 and the absence of $950,000 of revenue resulting from the settlement of a contractual volume deficiency payment recognized in 2004, partially offset by $452,000 of revenue from the settlement of a contractual volume deficiency payment recognized in 2005.

      The decline in Carbonate Trend’s average daily gathered volumes was caused by normal reservoir depletion, reduced capacity experienced at a third-party onshore treating plant in April 2005 and the temporary shutdowns for Hurricane Dennis in July 2005 and Hurricane Katrina in August 2005. The overall impact of this decline in gathered volumes on gathering revenue was approximately $1.1 million. This decline in gathered volumes was partially offset by a 11 percent higher average gathering rate causing a $300,000 increase in gathering revenue. The increase in the average gathering rate was due to a customer’s annual election in 2005 under a bundled rate provision within its contract.

      Operating and maintenance expense increased $142,000, or 25 percent, due to $72,000 increased costs for inhibitor chemicals and internal pipeline corrosion inspection, and $70,000 related to increased insurance costs. These increases were offset partially by increased painting expense in 2004.

      Segment operating income decreased $1.5 million, or 48 percent, due primarily to the lower revenues discussed above.

Year Ended December 31, 2004 vs. Year Ended December 31, 2003

      Carbonate Trend’s revenues decreased $0.7 million, or 12 percent, due primarily to a 26 percent decline in gathering volumes in 2004, largely offset by the recognition in 2004 of a $950,000 settlement of a contractual volume deficiency provision. Gathering volumes declined in 2004 due to lower production from connected wells that was not offset by new production coming online.

      Operating and maintenance expense increased $0.2 million due to additional costs for contractor services.

Four Corners

      Our interest in Four Corners is accounted for using the equity method of accounting. As such, our interest in Four Corners’ net operating results is reflected as equity earnings in our Consolidated Statements of Income. Due to the significance of Four Corners’ equity earnings to our results of operations, the following discussion addresses in greater detail the results of operations for 100 percent of Four Corners.

								Three Months
		Years Ended December 31,						Ended March 31,
		2005		2004		2003		2006			2005
		(In thousands)
Revenues		$	463,203	$	428,223	$	354,134	$	115,672		$	107,903
Costs and expenses, including interest:
	Product cost		165,706		146,328		91,328		38,277			36,434
	Operating and maintenance		104,648		97,070		89,783		29,095			25,646
	Depreciation and amortization		38,960		40,675		41,552		9,814			9,726
	General and administrative		31,292		29,566		24,102		6,638			7,780
	Taxes other than income		7,746		6,790		6,822		2,076			2,185
	Other, net		636		11,238		11,800		(3,643	)		237
Total costs and expenses			348,988		331,667		265,387		82,257			82,008
Income before cumulative effect of change in accounting principle		$	114,215	$	96,556	$	88,747	$	33,415		$	25,895
Williams Partners 25.1% interest-equity earnings per our Consolidated Statement of Income		$	28,668	$	24,236	$	22,276	$	8,387		$	6,499

Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005

      Revenues increased $7.8 million, or 7 percent, due to higher product sales and gathering and processing revenue.

      Product sales revenues increased $3.1 million, or 6 percent, due primarily to:

•  a $6.2 million increase related to a 24 percent increase in average NGL sales prices realized on sales of NGLs Four Corners received under its processing contracts;

•  $0.9 million of higher condensate sales associated with increased prices; and

•  $1.5 million of higher LNG sales.

      These increases were partially offset by $3.8 million related to a 13 percent decrease in NGL volumes received under Four Corners’ processing contracts. In 2005, a customer exercised an annual option to switch from a keep-whole contract to a fee-based contract, which decreased the NGL volumes that Four Corners retained. Additionally, product sales were $1.7 million lower due to a decrease in the sale of liquids 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. Under these arrangements Four Corners purchases the NGLs from the producers and sells them to an affiliate. This decrease was offset by lower associated product costs of $1.7 million discussed below.

      Fee-based gathering and processing revenues increased $4.7 million due primarily to higher revenue from an 8 percent increase in the average gathering and processing rates. The average gathering and processing rates increased in 2006 largely as a result of contractual escalation clauses. Most of Four Corners’ gathering contracts include escalation clauses that provide for an annual escalation based on an inflation-sensitive index. One significant gathering agreement is escalated based on changes in the average price of natural gas.

      Product cost, primarily shrink replacement gas, increased $1.8 million, or 5 percent, due primarily to a 37 percent increase in the average price of natural gas and $1.9 million related to product cost associated with higher condensate and NGL sales. These increases were partially offset by $3.0 million from 20 percent lower volumetric shrink requirements from Four Corners’ keep-whole processing contracts as a result of a customer exercising an annual option to switch from a keep-whole contract to a fee-based contract and a $1.7 million decrease from third party customers who elected to have Four Corners market their NGLs.

      Operating and maintenance expense increased $3.4 million, or 13 percent, due primarily to $2.2 million of higher product imbalance expense, including higher natural gas cost-related fuel and system losses.

      General and administrative expense decreased $1.1 million, or 15 percent, due primarily to a decrease in allocated general and administrative expense from Williams.

      Other expense, net improved $3.9 million due primarily to a $3.3 million gain recognized on the sale of the LaMaquina treating facility in the first quarter of 2006. The LaMaquina treating facility was shut down in 2002, and impairments were recorded in 2003 and 2004.

      Income before cumulative effect of change in accounting principle increased $7.5 million, or 29 percent, due primarily to $4.7 million of higher fee-based gathering and processing revenues, $1.3 million from higher product sales margins caused by increased per-unit margins on lower NGL sales volumes, the $3.9 million improvement in other expense, and the $1.1 million decrease in general and administrative expense. These increases were partially offset by $3.4 million of higher operating and maintenance expense.

Year Ended December 31, 2005 vs. Year Ended December 31, 2004

      Revenues increased $35.0 million, or 8 percent, due primarily to higher product sales and gathering revenue.

      Product sales revenues increased $26.4 million, or 13 percent, due to:

•  a $21.5 million increase in the sale of liquids on behalf of third parties. These NGL sales were 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 $21.5 million discussed below;

•  $21.1 million related to 21 percent higher average NGL sales prices realized for the volumes Four Corners received under its processing contracts;

•  $3.0 million higher LNG sales; and

•  $2.9 million higher condensate sales.

      These increases were partially offset by $22.1 million related to 18 percent lower NGL volumes received under Four Corners’ processing contracts. In 2005, a customer exercised an annual option to switch from a keep-whole contract to a fee-based contract, which decreased the NGL volumes that Four Corners retained.

      Fee-based gathering and processing revenues increased $9.8 million due to $17.1 million higher revenue from a 8 percent increase in the average gathering and processing rates, partially offset by $7.3 million lower revenue from 3 percent lower gathering volumes. The average gathering and processing rates increased in 2005 largely as a result of contractual escalation clauses. The volume decrease was driven by normal reservoir declines, which were partially offset by new well connects. The overall net decline is related primarily to the slightly steeper decline rate associated with coal bed methane production. Four Corners has historically offset substantially the impact of production declines with new well connects.

      Products cost, primarily shrink replacement gas, increased $19.4 million, or 13 percent, due primarily to the $21.5 million increase from third party customers who elected to have Four Corners market their NGLs and $15.1 million from a 30 percent increase in the average price of natural gas, partially offset by $17.2 million from 26 percent lower volumetric shrink requirements from Four Corners’ keep-whole processing contracts resulting from a customer exercising an annual option to switch from a keep-whole contract to a fee-based contract.

      Operating and maintenance expense increased $7.6 million, or 8 percent, due primarily to:

•  $5.1 million higher materials and supplies and outside services expense related to increased repair and maintenance activity;

•  $1.8 million of higher compressor costs from inflation-indexed escalation clauses in operating and maintenance agreements and additional rental units; and

•  $2.7 million of higher natural gas cost related to fuel and system gains and losses.

      These increases were partially offset by $2.0 million of other various operating and maintenance expense decreases.

      Depreciation and amortization expense decreased $1.7 million, or 4 percent, due primarily to the absence of depreciation on assets that were fully depreciated in 2004.

      General and administrative expense increased $1.7 million, or 6 percent, due primarily to an increase in allocated general and administrative expense from Williams.

      Taxes other than income increased $0.9 million, or 14 percent, due primarily to increased processing taxes. The State of New Mexico’s average processing tax rate increased 39 percent between 2004 and 2005. Some, but not all, of Four Corners’ contracts allow Four Corners to recoup these taxes.

      Other expense decreased $10.6 million, from $11.2 million in 2004, due primarily to the following 2004 charges that were not present in 2005:

•  $7.6 million impairment charge for the LaMaquina treating facility in 2004. The LaMaquina treating facility shut down in 2002 and was sold in the first quarter of 2006;

•  $1.2 million loss on asset dispositions; and

•  $1.0 million for materials and supplies inventory adjustments.

      Income before cumulative effect of change in accounting principle increased $17.7 million, or 18 percent, due primarily to higher gathering and processing revenues of $6.5 million and $3.3 million, respectively, $7.0 million in higher product sales margins on lower NGL sales volumes and lower other expenses of $10.6 million, partially offset by $7.6 million in higher operating and maintenance expenses and $1.7 million higher general and administrative expenses.

Year Ended December 31, 2004 vs. Year Ended December 31, 2003

      Revenues increased $74.1 million, or 21 percent, due primarily to higher product sales, partially offset by lower gathering and processing revenues.

      Product sales revenues increased $80.5 million, or 65 percent, due to:

•  a $41.8 million increase in the sale of NGLs on behalf of third parties. These NGL sales were 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 $41.8 million discussed below;

•  $28.5 million related to 29 percent higher average NGL sales prices realized for the volumes Four Corners received under its processing contracts;

•  $4.9 million related to 5 percent higher NGL volumes received under Four Corners’ processing contracts;

•  $4.0 million higher LNG sales; and

•  $1.3 million higher condensate sales.

      Gathering and processing revenues decreased $5.9 million due to $5.0 million lower revenue from a 2 percent decrease in the average gathering and processing rates and $0.9 million lower revenue from a 3 percent decrease in average gathered and processed volumes. The decrease in the average rate in 2004 was largely the result of a major new contract with a lower contract rate, partially offset by other contractual escalation clauses.

      Product cost, primarily shrink replacement gas, increased $55.0 million, or 60 percent, due primarily to a $41.8 million increase from third party customers who elected to have Four Corners market their NGLs, $10.2 million from an 18 percent increase in the average price of natural gas and $4.5 million related to increased LNG and condensate sales.

      Operating and maintenance expense increased $7.3 million, or 8 percent, due primarily to:

•  $4.4 million higher materials and supplies and outside services expense related to increased repair and maintenance activity; and

•  $2.7 million higher natural gas cost related to fuel and system gains and losses.

      Depreciation and amortization expense decreased $0.9 million, or 2 percent, due primarily to the absence of depreciation on assets that were fully depreciated in 2003.

      General and administrative expense increased $5.5 million, or 23 percent, due primarily to an increase in allocated general and administrative expense from Williams reflecting increased corporate overhead costs within the Williams organization. These increased costs related to various corporate initiatives and Sarbanes-Oxley Act compliance efforts within Williams.

      Other expense, net in 2004 includes:

•  $7.6 million impairment charge for the LaMaquina treating facility;

•  $1.2 million loss on asset dispositions; and

•  $1.0 million of materials and supplies inventory adjustments.

      Other expense, net in 2003 includes:

•  $4.1 million impairment charge for the LaMaquina treating facility;

•  $3.5 million of other asset impairment; and

•  $4.2 million of contractual settlement accruals.

      Income before cumulative effect of change in accounting principle increased $7.8 million, or 9 percent, due primarily to a $25.5 million higher average product sales margins on higher average NGL volumes, partially offset by lower gathering revenue of $4.5 million, higher operating and maintenance expense of $7.3 million and higher general and administrative expense of $5.5 million.

      Discovery

      Discovery is accounted for using the equity method of accounting. As such, our interest in Discovery’s net operating results is reflected as equity earnings in our Consolidated Statement of Income. Due to the significance of Discovery’s equity earnings to our results of operations, the following discussion addresses in greater detail, the results of operations for 100 percent of Discovery.

											Three Months Ended
		Years Ended December 31,									March 31,
		2005			2004			2003			2006			2005
		(In thousands)
Revenues		$	122,745		$	99,876		$	103,178		$	62,120		$	27,289
Costs and expenses, including interest:
	Product cost and shrink replacement		64,467			45,355			42,914			41,550			11,124
	Operating and maintenance expense		10,165			17,854			15,829			4,822			3,993
	General and administrative expense		2,053			1,424			1,400			690			500
	Depreciation and accretion		24,794			22,795			22,875			6,379			6,113
	Interest expense (income)		(1,685	)		(550	)		9,611			(626	)		(284	)
	Other (income) expenses, net		2,123			1,328			1,501			(147	)		312
Total costs and expenses, including interest			101,917			88,206			94,130			52,668			21,758
Income before cumulative effect of change in accounting principle		$	20,828		$	11,670		$	9,048		$	9,452		$	5,531
Williams Partners’ 40% interest		$	8,331		$	4,668		$	3,619		$	3,781		$	2,212
Capitalized interest amortization			—			(173	)		(172	)		—			—
Equity earnings per our Consolidated Statement of Income		$	8,331		$	4,495		$	3,447		$	3,781		$	2,212

     Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005

      Revenues increased $34.8 million, or 128 percent, due primarily to higher NGL product sales from the marketing of customers’ NGLs. In addition, the Tennessee Gas Pipeline, or TGP, and Texas Eastern Transmission Company, or TETCO, open seasons, which began in the last quarter of 2005, accounted for $9.9 million in revenues. Throughput volumes from TETCO’s open season ended on March 14, 2006, and throughput volumes from TGP’s open season have substantially decreased and may cease soon. The significant components of the revenue increase are addressed more fully below.

•  Product sales increased $36.8 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 $36.8 million as discussed below.

•  Processing and fractionation revenues increased $5.6 million, including $6.7 million in additional fee-based revenues related to the TGP and TETCO open seasons discussed above and $0.8 million of increased volumes from the Front Runner prospect, partially offset by normal reservoir declines.

•  Transportation revenue increased $2.1 million, including $3.2 million in additional fee-based revenues related to the TGP and TETCO open seasons discussed above, partially offset by $1.0 million related to normal reservoir declines.

      Partially offsetting these increases were the following:

•  Product sales decreased approximately $8.5 million as a result of 60 percent lower NGL sales following Hurricanes Katrina and Rita, partially offset by a $1.8 million increase associated with 32 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 $2.1 million due primarily to a $1.4 million deficiency payment received in the first quarter of 2005.

      Product cost and shrink replacement increased $30.4 million, from $11.1 million in 2005, due primarily to $36.8 million of product purchase costs for customers who elected to have Discovery market their NGLs and $1.4 million from higher average per-unit natural gas prices, partially offset by $6.3 million of lower costs related to reduced processing activity in 2006.

      Other operating and maintenance expense increased $0.8 million, or 21 percent, due primarily to $0.6 million of higher processing costs related to increased throughput volumes and $0.2 million of higher property insurance costs in 2006 following the 2005 hurricanes.

      General and administrative expense increased $0.2 million, or 38 percent, due primarily to an increase in the management fee paid to Williams related to Discovery’s market expansion project and additions of other facilities.

      Depreciation and accretion expense increased $0.3 million, or 4 percent, due primarily to the addition of market expansion assets.

      Interest income increased $0.3 million due primarily to interest earned on the restricted cash balance for the Tahiti project.

      Other (income) expense, net improved $0.5 million due primarily to a non-cash foreign currency transaction gain from the revaluation of restricted cash accounts denominated in Euros. These restricted cash accounts were established from contributions made by Discovery’s members, including us, for the construction of the Tahiti pipeline lateral expansion project.

      Income before cumulative effect of change in accounting principle increased $3.9 million, or 71 percent, due primarily to the TGP and TETCO open seasons that contributed approximately $8.2 million. This was largely offset by $1.1 million of lower gross processing margins and $0.7 million of lower gathering revenues related to lower volumes following the hurricanes, the absence of a $1.4 million deficiency payment received in 2005 and $1.1 million of higher operating and maintenance and general and administrative expenses.

     Year Ended December 31, 2005 vs. Year Ended December 31, 2004

      Revenues increased $22.9 million, or 23 percent, due primarily to higher NGL product sales from marketing of customers’ NGLs, fractionation revenue, processing revenue and average per-unit NGL sales prices, partially offset by lower NGL sales volumes. The significant components of the revenue increase are addressed more fully below:

•  Product sales increased $31.6 million for the NGL sales related to third-party processing customers’ election 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 $31.6 million discussed below.

•  Processing and fractionation revenues increased $6.8 million including $3.9 million in additional volumes related to the TGP and TETCO open seasons discussed previously, $2.9 million related to an

	increase in the fractionation rate for increased natural gas fuel cost pass through, and other increases related to new volumes from the Front Runner prospect that came on line in the first quarter of 2005.
•	Gathering revenues increased $2.1 million due primarily to a $1.4 million deficiency payment received in 2005 related to a volume shortfall under a transportation contract, $0.4 million related to an increase in volumes and $0.3 million related to a 25 percent higher average gathering rate associated with new volumes from the Front Runner prospect.

Partially offsetting these increases were the following:

•  Product sales decreased $4.9 million as a result of lower sales of excess fuel and shrink replacement gas in 2005. During the first half of 2004, increased natural gas prices made it more economical for Discovery’s customers to bypass the processing plant rather than process the gas, leaving Discovery with higher levels of excess fuel and shrink replacement gas in 2004 than 2005.

•  Product sales also decreased approximately $16.0 million as a result of 36 percent lower NGL sales volumes following Hurricanes Katrina and Rita, partially offset by a $5.0 million increase associated with a 17 percent higher average sales prices.

•  Transportation revenues decreased $0.6 million due primarily to lower condensate transportation volumes. Higher average natural gas transportation volumes were partially offset by a lower average natural gas transmission rate.

•  Other revenues declined $1.1 million due largely to lower platform rental fees.

      Product cost and shrink replacement increased $19.1 million, or 42 percent, due primarily to:

•  $31.6 million increased purchase costs for the two processing customers who elected to have Discovery market their NGLs; and

•  $3.4 million resulting from higher average per-unit natural gas prices.

      Partially offsetting these increases were the following:

•  $11.0 million lower costs related to reduced processing activity in 2005; and

•  $4.9 million lower cost associated with sales of excess fuel and shrink replacement gas.

      Operating and maintenance expense decreased $7.7 million, or 43 percent, due primarily to a $10.7 million credit related to amounts previously deferred for net system gains from 2002 through 2004 that were reversed following the acceptance in 2005 of a filing with FERC, partially offset by $1.2 million higher utility costs, $1.0 million of uninsured damages caused by Hurricane Katrina, and $0.8 million other miscellaneous operational costs.

      General and administrative expense increased $0.6 million, or 44 percent, due primarily to an increase in the management fee paid to Williams related to Discovery’s market expansion project and additions of other facilities.

      Depreciation and accretion expense increased $2.0 million, or 9 percent, due primarily to the completion of a pipeline connection to the Front Runner prospect in late 2004.

      Interest income increased $1.1 million, due primarily to increases in interest-bearing cash balances during early 2005 when cash flows from operations were being retained by Discovery.

      Other expenses, net increased $0.8 million, or 60 percent, due primarily to a non-cash foreign currency transaction loss from the revaluation of restricted cash accounts denominated in Euros. These restricted cash accounts were established from contributions made by Discovery’s members, including us, for the construction of the Tahiti pipeline lateral expansion project.

      Income before cumulative effect of change in accounting principle increased $9.2 million, or 78 percent, due primarily to the $10.7 million reversal of deferred net system gains, $8.9 million increased revenue from

gathering, processing and fractionation services and $1.1 million higher interest income, partially offset by $3.5 million lower product sales margins, $3.0 million higher other operating and maintenance expense, $0.6 million higher general and administrative expense, $2.0 million higher depreciation and accretion, and $0.8 million of higher other expense including the foreign currency transaction loss.

Year Ended December 31, 2004 vs. Year Ended December 31, 2003

      The $3.3 million, or 3 percent, decrease in revenues resulted primarily from lower fuel and shrink replacement gas sales in 2004 and lower NGL sales volumes, partially offset by higher average per-unit NGL sales prices. The significant components of the revenue decrease are addressed more fully below:

•  Increasing gas prices during some months of 2003 made it more economical for Discovery’s customers to bypass the processing plant rather than to process the gas, leaving Discovery with higher levels of excess fuel and shrink replacement gas in 2003 than 2004. This excess natural gas was sold in the market in 2003, which resulted in $5.1 million of lower revenues in 2004.

•  Transportation volumes declined 6 percent due to production declines and a temporary interruption of service because of an accidental influx of seawater in a lateral while putting in place a subsea connection to a wellhead. These lower volumes resulted in a decrease in fee-based revenues, including $2.7 million from gathering and transportation, $2.2 million from fee-based processing and $0.2 million from fractionation, for a total of $5.1 million.

•  Other revenues decreased $1.5 million due to a $0.9 million decrease in offshore platform production handling fees related to lower natural gas production volumes and $0.8 million received in connection with the resolution of a condensate measurement and ownership allocation issue in 2003.

•  NGL sales increased $8.5 million due to a 26 percent increase in average sales prices, which were slightly offset by a 2 percent decrease in sales volumes.

      Product cost and shrink replacement increased by $2.4 million, or 6 percent, primarily due to higher average natural gas prices. Operating and maintenance expense increased $2.0 million, or 12 percent, from 2003 due primarily to $1.2 million of costs for a routine compressor overhaul and $1.3 million of costs to correct a non-routine temporary interruption of service due to an accidental influx of seawater in our offshore pipeline. These increases were partially offset by lower miscellaneous operating expenses.

      Interest expense decreased $9.6 million due to the repayment of $253.7 million of outstanding debt in December 2003. Other expense, net decreased $0.7 million due primarily to $0.6 million of income earned on the short-term investing of excess cash.

      Income before cumulative effect of change in accounting principle increased $2.6 million, or 29 percent, due primarily to $9.6 million lower interest expense, $0.7 million lower other expense, partially offset by $3.3 million lower revenue, $2.4 million higher product cost and shrink replacement expense and $2.0 million higher operating and maintenance expense.

Outlook for 2006

Carbonate Trend

      Prior to our initial public offering, Williams incurred and paid $965,000 of costs to assess property damage caused by Hurricane Ivan in 2004 to the Carbonate Trend pipeline. This resulted in an insurance receivable for Williams. Although Williams believes these costs to be recoverable under its property damage insurance, it has not received approval from its insurer and it is possible that the insurer will deny some or all of this claim. If Williams’ is unable to recover these costs from insurance, we will recognize a loss for these costs as they relate to the Carbonate Trend pipeline. This loss will be fully allocated to our general partner.

      Additionally, we currently estimate that we will incur $3.4 million to $4.6 million of maintenance expenditures for Carbonate Trend during 2006 and 2007 for restoration activities related to the partial erosion

of the pipeline overburden caused by Hurricane Ivan in September 2004. Under an omnibus agreement, Williams agreed to reimburse us for the cost of these restoration activities. In connection with these restoration activities, the Carbonate Trend pipeline may experience a temporary shut down. We estimate that such a shut down could reduce our cash flows from operations, excluding the maintenance expenditures, by approximately $200,000 to $300,000. Additionally, in 2006, recompletions and workovers may not offset production declines from the wells currently connected to the Carbonate Trend pipeline.

       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 in gathered and processed volumes.
•	Four Corners has realized above average margins at its gas processing plants in recent years, despite volatile natural gas and crude oil markets. We expect 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 slightly in 2006. Compression cost increases are dependent upon the extent and amount of additional compression needed to meet the needs of Four Corners’ customers.
•	Four Corners has not planned any major capital projects for 2006. We estimate that capital expenditures will be approximately $26.2 million for 2006 primarily for well connections and maintenance. We expect Four Corners will fund these capital expenditures with cash generated from operations and capital contributions from its members.
•	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 below-market natural gas purchase contract with Williams.
Discovery

      Throughput volumes on Discovery’s pipeline system are an important component of maximizing our profitability. Pipeline throughput volumes from existing wells connected to our pipelines will naturally decline over time. Accordingly, to maintain or increase throughput levels on these pipelines and the utilization rate of Discovery’s natural gas plant and fractionator, we and Discovery must continually obtain new supplies of natural gas.

•  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 natural gas processing 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 Discovery’s 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 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.

•  On March 31, 2006, Discovery connected a new well in ATP Oil & Gas Corporation’s Gomez prospect, with initial volumes of approximately 13,000 MMBtu/d, which ATP has announced that it expects will increase.

•  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.

Results of Operations — NGL Services

      The NGL Services segment includes our three NGL storage facilities near Conway, Kansas and our undivided 50 percent interest in the Conway fractionator.

								Three Months
		Years Ended December 31,						Ended March 31,
		2005		2004		2003		2006		2005
		(In thousands)
Segment revenues		$	48,254	$	36,143	$	22,781	$	16,330	$	10,489
Costs and expenses:
	Operating and maintenance expense		24,397		18,804		13,581		7,449		5,621
	Product cost		11,821		6,635		1,263		5,723		2,735
	Depreciation and accretion		2,419		2,486		2,507		600		605
	General and administrative expense — direct		1,068		535		421		301		203
	Other, net		694		625		507		207		192
Total costs and expenses			40,399		29,085		18,279		14,280		9,356
Segment profit		$	7,855	$	7,058	$	4,502	$	2,050	$	1,133

Three months ended March 31, 2006 vs. Three months ended March 31, 2005

      Segment revenues increased $5.8 million, or 56 percent, due primarily to higher product sales and higher fractionation and storage revenues. The significant components of the revenue increase are addressed more fully below:

•  Product sales were $3.2 million higher due primarily to the increased sale of normal butane and propylene. The $2.0 million increase in normal butane resulted from the sale of product that was previously purchased for operating supply at our storage facilities. The $1.1 million increase in propylene sales resulted from product realized from a standard loss allowance retained when we unload railcars. This volume accumulated in 2004 and 2005. This increase was largely offset by the related increase in product cost.

•  Fractionation revenues increased $1.5 million due primarily to a 35 percent increase in the average fractionation rate related to the pass through to customers of increased fuel and power costs and 21 percent higher volumes in the first three months of 2006 compared to the first three months of 2005. The increased fractionation volumes are a result of increased customer throughput in anticipation of a scheduled turnaround in April 2006 and the elimination of Conway’s backlogged product at its storage facilities.

•  Storage revenues increased $0.7 million due primarily to higher average per-unit storage rates for the 2005-2006 term and higher storage volumes from additional short-term storage leases caused by the reduced demand for propane due to the unusually warm temperatures in the early winter months of 2006.

•  Other revenues increased $0.4 million due to increased butane conversion revenue and increased terminaling revenue.

      The following table summarizes the major components of operating and maintenance expense which are discussed in detail below.

		Three Months
		Ended March 31,
		2006			2005
		(In thousands)
Operating and maintenance expense:
	Salaries and benefits	$	701		$	661
	Outside services and other		3,492			1,555
	Fuel and power		3,658			2,268
	Product imbalance expense (income)		(402	)		1,137
Total operating and maintenance expense		$	7,449		$	5,621

•  Outside services and other increased $1.9 million due primarily to increased storage cavern workovers required to meet KDHE requirements.

•  Fuel and power costs increased $1.4 million due primarily to:

•  $0.5 million of higher average costs due to a 23 percent increase in the price of natural gas;

•  $0.4 million of higher average costs associated with a long-term physical natural gas contract; and

•  a $0.4 million increase due to a 19 percent increase in the consumption of natural gas associated with higher fractionated volumes.

•  Product imbalance expense (income) had a favorable change of $1.5 million due primarily to:

•  $1.2 million of gains recognized from the management of the fractionation process to optimize the resulting mix of products, which typically results in surplus propane volumes and deficit ethane volumes; and

•  $0.8 million of lower product imbalance valuation adjustments.

        Partially offsetting these increases are $0.6 million of losses recognized as we emptied our caverns.

      Product cost increased $3.0 million, or 109 percent, directly related to the increased sales of surplus propylene and normal butane volumes discussed above.

      Segment profit increased $0.9 million, or 81 percent, due primarily to the $2.2 million of higher storage and fractionation revenues, $0.4 million of higher other revenues and $0.3 million of higher product sales margins, largely offset by $1.9 million of higher operating and maintenance expense.

Year Ended December 31, 2005 vs. Year Ended December 31, 2004

      Segment revenues increased $12.1 million, or 34 percent, due primarily to higher product sales, storage and fractionation revenues. The significant components of the revenue increase are addressed more fully below:

•  Product sales were $5.0 million higher due primarily to the sale of surplus propane volumes created through our product optimization activities. This increase was partially offset by the related increase in product cost.

•  Storage revenues increased $5.0 million due primarily to higher average per-unit storage rates for 2005 and higher storage volumes from additional short-term storage leases caused by the reduced demand for propane due to unusually warm temperatures in the early winter months of 2005 and an overall increase in butane storage volumes. The published rate for one-year storage contracts increased 67 percent on April 1, 2004, primarily reflecting the pass through to customers of increased costs to comply with KDHE regulations. The storage volumes in the remaining quarters of 2004 initially declined due to these higher storage rates. During 2005, the volumes returned to more normal levels.

•  Fractionation revenues increased $1.7 million due primarily to a 17 percent increase in the average fractionation rate related to the pass through to customers of increased fuel and power costs and 4 percent higher volumes in 2005.

•  Other revenues increased $0.4 million due to increased railcar loadings in 2005.

      The following table summarizes the major components of operating and maintenance expense that are discussed in detail below.

		Years Ended December 31,
		2005		2004			2003
		(In thousands)
Operating and maintenance expense:
	Salaries and benefits	$	2,773	$	2,740		$	2,762
	Outside services and other		7,458		8,240			3,843
	Fuel and power		12,538		8,565			7,608
	Product imbalance expense (income)		1,628		(741	)		(632	)
Total operating and maintenance expense		$	24,397	$	18,804		$	13,581

•  Outside services and other decreased $0.8 million due to fewer storage cavern workovers in 2005 as compared to 2004. Also our estimated asset retirement obligation for the storage caverns was adjusted in 2005, reducing our operating expense by $0.5 million.

•  Fuel and power costs increased $4.0 million due primarily to a 33 percent increase in the average per-unit price for natural gas, which we are generally able to pass through to our customers. Fuel and power costs also include $2.0 million for the amortization of a natural gas purchase contract contributed to us by Williams at the closing of our initial public offering. Please read “— Our Operations — NGL Services Segment — Fractionation Contracts.”

•  Product imbalance expense increased $2.4 million due primarily to $3.0 million of larger product imbalance valuation adjustments, and $0.6 million other product losses, partially offset by a $1.2 million increase in product optimization gains due to a significantly higher spread between propane and ethane prices in 2005.

      Product cost increased $5.2 million, or 78 percent, directly related to increased sales of surplus propane volumes created through our product optimization activities.

      General and administrative expense — direct increased $0.5 million, or 100 percent, due primarily to increased operational and technical support for these assets.

      Segment profit increased $0.8 million, or 11 percent, due primarily to the $6.7 million higher storage and fractionation revenues and $0.4 million higher other revenues for increased railcar loadings in 2005, partially offset by $5.6 million higher operating and maintenance expense, $0.5 million higher general and administrative expense — direct charges, and $0.2 million decrease in product margin.

Year Ended December 31, 2004 vs. Year Ended December 31, 2003

      Revenues increased $13.4 million, or 59 percent, due primarily to increased product sales and storage revenues. The significant components of the revenue increase are addressed more fully below:

•  Product sales were $6.9 million higher primarily due to the sale of surplus propane volumes created through our product optimization activities. Prior to 2003, the sale and purchase activities and related inventory associated with product optimization were conducted by another wholly owned subsidiary of Williams that was sold in 2002. We made no sales of surplus propane until 2004 as we transitioned to conducting these activities and accumulated inventory.

•  Storage revenues increased $3.7 million due to higher average per-unit storage rates, slightly offset by lower contracted storage volumes. The published rate for one-year storage contracts increased 67 percent on April 1, 2004 and primarily reflects the pass through of increased costs to comply with KDHE regulations.

•  During 2004 we began offering product upgrading services for normal butane at our fractionator. This service contributed $1.7 million of fee revenues in 2004.

      Product costs increased $5.4 million, from $1.3 million, directly related to increased product sales. Operating and maintenance expenses increased by $5.2 million, or 38 percent, primarily from higher maintenance expenses and fuel costs. The significant components are addressed more fully below:

•  Outside services and other expenses increased $4.4 million due to new storage cavern workover activity related to KDHE requirements.

•  Fuel expense increased $1.0 million due to an 18 percent increase in the average price of natural gas.

      Segment profit increased $2.6 million, or 57 percent, due primarily to higher storage and fractionation revenue of $4.5 million, $1.5 million higher product sales margins and $1.7 million higher other fee revenues, partially offset by $5.2 million higher operating and maintenance expense.

Outlook for 2006

      For the second quarter of 2006, fractionation volumes will decrease due to scheduled maintenance activities necessary to ensure the mechanical integrity of the fractionator. After this maintenance is completed, we expect to average throughput of approximately 42,000 bpd for the remainder of 2006. 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 would generate revenues equal to last year’s record levels. There is still potential for additional short-term storage contracts later in 2006.

      We continue to have a high level of storage cavern workovers and wellhead modifications to comply with KDHE regulatory requirements. We expect outside service costs to continue at high levels throughout 2006 and 2007 to ensure that we meet the regulatory compliance requirement to complete cavern workovers before the end of 2008. After the completion of the wellhead modifications, maintenance expenditures should significantly decrease.

Financial Condition and Liquidity

Outlook for 2006

      Prior to our IPO in August 2005, our sources of liquidity included cash generated from operations and funding from Williams. Our cash receipts were deposited in Williams’ bank accounts and all cash disbursements were made from these accounts. Thus, historically our financial statements have reflected no cash balances. Cash transactions handled by Williams for us were reflected in intercompany advances between Williams and us. Following our IPO, we maintain our own bank accounts but continue to utilize Williams’ personnel to manage our cash and investments.

      We believe we have, or have access, to the financial resources and liquidity necessary to meet future requirements for working capital, capital and investment expenditures, and quarterly cash distributions. We anticipate our 2006 sources of liquidity will include:

•  the issuance of common units in our Form S-1 filed on April 7, 2006;

•  the issuance of senior notes in a private placement concurrent with the common unit offering in our Form S-1 filed on April 7, 2006;

•  cash and cash equivalents;

•  cash generated from operations;

•  cash distributions from Discovery and Four Corners;

•  capital contributions from Williams pursuant to the omnibus agreement; and

•  other borrowings under our credit facilities, as needed.

      We anticipate our more significant 2006 capital requirements to be:

•  acquisition of a 25.1 percent interest in Four Corners on June 20, 2006;

•  debt service payments;

•  maintenance capital expenditures for our Conway assets;

•  capital contributions to Discovery for its capital expenditure program; and

•  minimum quarterly distributions to our unitholders.

      Four Corners

      Historically, Four Corners’ sources of liquidity included cash generated from operations and advances from Williams. Four Corners’ limited liability company agreement, as amended effective as of the closing of our purchase of a 25.1 percent member interest, provides for the distribution of available cash on at least a quarterly basis. We expect future cash requirements for Four Corners relating to working capital, maintenance capital expenditures and quarterly cash distributions to members to be funded from cash flows internally generated from its operations. Growth or expansion capital expenditures for Four Corners will be funded by either cash calls to its members, which requires unanimous consent of the members except in limited circumstances, or from internally generated funds.

      Discovery

      Prior to our IPO, cash distributions from Discovery to its members required unanimous consent and no such distributions were made. Discovery’s limited liability company agreement was amended to provide for quarterly distributions of available cash. We expect future cash requirements for Discovery relating to working capital and maintenance capital expenditures to be funded from cash retained by Discovery at the closing of our initial public offering and from its own internally generated cash flows from operations. Growth or expansion capital expenditures for Discovery will be funded by either cash calls to its members, which requires unanimous consent of the members except in limited circumstances, or from internally generated funds.

      Prospectively, Discovery expects to make quarterly distributions of available cash to its members instead of retaining all cash from operations. Accordingly, on April 28, 2006, pursuant to the terms of its limited liability company agreement, Discovery made a $9.0 million distribution of available cash to its members. Our 40 percent share of this distribution was $3.6 million.

      In 2005, Discovery sustained damages from Hurricane Katrina that exceeded its $1.0 million insurance deductible. Discovery estimates the total cost for hurricane-related repairs will be approximately $7.7 million, $6.7 million in excess of its deductible. Discovery will fund these repairs with cash flows from operations and then seek reimbursement from its insurance carrier. The insurance receivable at March 31, 2006 was $3.9 million.

Capital Contributions from Williams

      Capital contributions from Williams, including amounts required under the omnibus agreement, consist of the following:

•  Indemnification of environmental and related expenditures for a period of three years (for certain of those expenditures) up to $14.0 million, which includes between $3.4 million and $4.6 million for the restoration activities related 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.
•	An annual credit for general and administrative expenses of $3.9 million in 2005 ($1.4 million pro-rated for the portion of the year from August 23 to December 31), $3.2 million in 2006, $2.4 million in 2007, $1.6 million in 2008 and $0.8 million in 2009.
•	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.
•	Capital contributions from Williams of approximately $1.0 million for other KDHE-related compliance work at our Conway storage facilities.

Credit Facilities

      On May 20, 2005, Williams amended its $1.275 billion revolving credit facility (“Williams facility”), which is available for borrowings and letters of credit, to allow us to borrow up to $75 million under the Williams facility. Borrowings under the Williams facility mature on May 3, 2007. Our $75 million borrowing limit under the Williams facility is available for general partnership purposes, including acquisitions, but only to the extent that sufficient amounts remain unborrowed by Williams and its other subsidiaries. At December 31, 2005, letters of credit totaling $378 million had been issued on behalf of Williams by the participating institutions under the Williams facility and no revolving credit loans were outstanding.

     In May 2006, Williams replaced its $1.275 billion secured credit facility with a $1.5 billion unsecured credit agreement. The new facility contains similar terms and covenants as the prior facility, but contains additional restrictions on asset sales, certain subsidiary debt and sale-leaseback transactions.

      Interest on any borrowings under the Williams facility is calculated based on our choice of two methods: (i) a fluctuating rate equal to the facilitating bank’s base rate plus an applicable margin or (ii) a periodic fixed rate equal to LIBOR plus an applicable margin. We are also required to pay or reimburse Williams for an annual commitment fee, .3 percent and 0.325 percent at March 31, 2006 and December 31, 2005 respectively, based on the unused portion of its $75 million borrowing limit under the Williams facility. The applicable margin, 1.75 percent at March 31, 2006 and December 31, 2005, and the commitment fee are based on Williams’ senior unsecured long-term debt rating. Under the Williams facility, Williams and certain of its subsidiaries, other than us, are required to comply with certain financial and other covenants. Significant financial covenants under the Williams facility to which Williams is subject include the following:

•  ratio of debt to net worth no greater than (i) 70 percent through December 31, 2005, and (ii) 65 percent for the remaining term of the agreement;

•  ratio of debt to net worth no greater than 55 percent for Northwest Pipeline Corporation, a wholly owned subsidiary of Williams, and Transco; and

•  ratio of EBITDA to interest, on a rolling four quarter basis, no less than (i) 2.0 for any period after March 31, 2005 through December 31, 2005, and (ii) 2.5 for the remaining term of the agreement.

      In August 2005, we entered into a $20 million revolving credit facility (the “credit facility”) with Williams as the lender. The credit facility is available exclusively to fund working capital requirements. Borrowings under the credit facility mature on May 3, 2007 and bear interest at the same rate as for borrowings under the Williams facility described above. We pay a commitment fee to Williams on the unused portion of the credit facility of 0.30 percent annually. We are required to reduce all borrowings under the credit facility to zero for a period of at least 15 consecutive days once each 12-month period prior to the maturity date of the credit facility. No amounts have been drawn on this facility.

Capital Requirements

      The natural gas gathering, processing and transportation and NGL fractionation and storage businesses are capital-intensive, requiring investment to upgrade or enhance existing operations and comply with safety and environmental regulations. The capital requirements of these businesses consist primarily of:

•  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.

      We estimate that maintenance capital expenditures for the Conway assets will be approximately $8.3 million for 2006. Of this amount, approximately $2.3 million of expenditures will be reimbursed by Williams subject to the omnibus agreement. This omnibus agreement includes a three-year limitation from the closing date of our IPO, and a limitation of $14.0 million on environmental and related indemnities.

      We estimate that maintenance capital expenditures for 100 percent of Four Corners will be approximately $18.7 million for 2006. We expect Four Corners will fund its maintenance capital expenditures through its cash flow from operations. These expenditures relate primarily to well connections necessary to connect new sources of throughput for the Four Corners’ system. We expect these new sources of throughput will substantially offset the natural decline of existing sources.

      We estimate that expansion capital expenditures for 100 percent of Four Corners will be approximately $7.2 million for 2006. We expect Four Corners to fund its expansion capital expenditures through its cash flows from operations.

      We estimate that maintenance capital expenditures for 100 percent of Discovery will be approximately $2.3 million for 2006. We expect Discovery will fund its maintenance capital expenditures through its cash flows from operations.

      We estimate that expansion capital expenditures for 100 percent of Discovery will be approximately $30.8 million for 2006. These expenditures are primarily for the ongoing construction of the Tahiti pipeline lateral expansion project. Discovery will fund these expenditures with amounts previously escrowed for this project.

Working Capital Attributable to Deferred Revenues

      We require cash in order to continue providing services to our storage customers who prepay their annual storage contracts in April of each year. The storage year for a majority of customer contracts at our Conway storage facility runs from April 1 of a year to March 31 of the following year. For most of these agreements we receive payment for these one-year contracts in advance in April after the beginning of the storage year and recognize the associated revenue over the course of the storage year. We reserve cash

throughout the storage year to fund the cost of providing these services. As of March 31, 2006, our deferred storage revenue was $0.2 million.

Cash Distributions to Unitholders

      We paid a quarterly distribution of $5.0 million ($.35 per unit) to common and subordinated unitholders and the general partner interest on February 14, 2006. We intend to make a quarterly distribution each quarter during 2006, including $5.4 million ($0.38 per unit) on May 15, 2006 to the general partner interest and common and subordinated unitholders of record at the close of business on May 8, 2006.

Cash Flows

Williams Partners L.P.

										Three Months Ended
	Years Ended December 31,									March 31,
	2005			2004			2003			2006			2005
	(In thousands)
Net cash provided (used) by operating activities	$	1,893		$	2,703		$	6,664		$	2,395		$	(4,055	)
Net cash used by investing activities		(28,088	)		(1,534	)		(102,810	)	$	(1,165	)	$	(212	)
Net cash provided (used) by financing activities		33,034			(1,169	)		96,166		$	(3,754	)	$	4,267

      The $6.5 million increase in net cash provided by operating activities for the first three months of 2006 as compared to the first three months of 2005 is due primarily to:

•  a $4.4 million increase in distributed earnings from Discovery; and

•  $2.8 million in lower interest expenses due to the forgiveness by Williams of advances to us at the closing of our IPO.

      The $0.8 million decrease in net cash provided by operating activities in 2005 as compared to 2004 is due primarily to:

•  $2.6 million related to trade accounts receivable at August 22, 2005 that were not included in the contribution of net assets to us;

•  $2.5 million related to decreases in the Conway product imbalance liability largely resulting from settlement activity in the fourth quarter of 2005; and

•  $1.0 million lower operating income, adjusted for non-cash expenses.

      These decreases were largely offset by:

•  $4.2 million in lower interest expense due to the forgiveness by Williams of advances to our predecessor at the closing of our IPO; and

•  a $1.3 million increase in distributed earnings from Discovery.

      The decrease of $3.9 million in net cash provided by operating activities in 2004 as compared to 2003 reflects an increase of $8.3 million in interest expense in 2004 related primarily to the funding of our $101.6 million share of a Discovery cash call discussed below. This decrease in net cash provided by operating activities was partially offset by changes in working capital, including a $2.7 million increase in accounts payable. The increase in accounts payable was due to a $1.6 million accrual for spot ethane purchases in December 2004 and a $1.0 million higher accrual for power costs at the end of 2004 as compared to 2003.

      Net cash used by investing activities includes maintenance capital expenditures in our NGL Services segment, including the installation of cavern liners and KDHE-related cavern compliance with the installation of wellhead control equipment and well meters. In addition, 2005 includes our capital contribution of $24.4 million to Discovery for construction of the Tahiti pipeline lateral expansion project. Net cash used

by investing activities in 2003 also includes our predecessor’s $101.6 million capital contribution to Discovery for the repayment of Discovery’s outstanding debt in December 2003.

      Net cash used by financing activities for the three months ended March 31, 2006 includes $5.0 million of distributions paid to unitholders partially offset by $1.2 million in indemnifications and reimbursements received from Williams pursuant to the omnibus agreement. Net cash provided by financing activities in 2005 includes the cash flows related to our IPO on August 23, 2005. These consisted of $100.2 million in net proceeds from the sale of the common and subordinated units, a $58.8 million distribution to Williams and the payment of $4.3 million in expenses associated with our initial public offering. Net cash provided (used) by financing activities for 2004 and 2005 also includes the pass through of $1.2 million and $3.7 million, respectively, of net cash flows to Williams prior to August 23, 2005, under its cash management program. Following the closing of our initial public offering on August 23, 2005, we no longer participate in Williams’ cash management program, and our net cash flows no longer pass through to Williams. The annual 2005 period also includes $2.1 million of distributions paid to unitholders and $1.6 million in indemnifications and reimbursements received from Williams pursuant to the omnibus agreement.

      Net cash provided by financing activities in 2003 includes advances from Williams to fund our $101.6 million share of a Discovery cash call discussed below. The remaining 2003 financing cash flows represent the pass through of our net cash flows to Williams under its cash management program as described above.

Four Corners — 100%

										Three Months Ended
	Years Ended December 31,									March 31,
	2005			2004			2003			2006			2005
	(In thousands)
Net cash provided by operating activities	$	156,039		$	134,387		$	122,266		$	29,464		$	37,027
Net cash used by investing activities		(27,578	)		(13,920	)		(6,581	)		(1,250	)		(2,540	)
Net cash used by financing activities		(128,461	)		(120,467	)		(115,685	)		(28,214	)		(34,487	)

      The $7.6 million decrease in net cash provided by operating activities in the first three months of 2006 as compared to the first three months of 2005 is due primarily to a $11.9 million increase in cash used by changes in working capital partially offset by a $4.3 million increase in operating income as adjusted for non-cash items. The $11.9 million increase in cash used by changes in working capital was due primarily to $6.9 million in changes in the shrink replacement gas imbalance, a $3.0 million change in cash associated with accounts receivable and $2.0 million in greater outflows associated with accounts payable.

      The $21.7 million increase in net cash provided by operating activities in 2005 as compared to 2004 is due primarily to:

•  $8.0 million increase in operating income, as adjusted for non-cash expenses; and

•  $13.8 million in cash provided from changes in working capital related primarily to a change in the shrink replacement gas imbalance from 2004 to 2005.

      The increase of $12.1 million in net cash provided by operating activities in 2004 as compared to 2003 was due primarily to:

•  $9.4 million increase in operating income, as adjusted for non-cash expenses; and

•  $2.7 million in cash provided from changes in working capital related primarily to a change in accounts payable.

      Net cash used by investing activities in 2003, 2004 and 2005 and the first three months of 2005 and 2006 included maintenance capital expenditures of $2.0 million, $1.1 million, $3.2 million, $2.5 million and $1.6 million, respectively. Additionally, other capital expenditures for 2003, 2004 and 2005 and the first three months of 2005 and 2006 were $6.1 million, $13.0 million, $24.4 million, $0.0 and $6.8 million, respectively. These expenditures related primarily to the connection of new wells. Net cash used by investing activities in 2003 was favorably impacted by $1.5 million in proceeds from sales of property, plant and equipment.

      Net cash used by financing activities for all periods are distributions of Four Corners’ net cash flows to Williams.

Discovery — 100%

										Three Months Ended
	Years Ended December 31,									March 31,
	2005			2004			2003			2006			2005
	(In thousands)
Net cash provided by operating activities	$	30,814		$	35,623		$	44,025		$	18,515		$	7,981
Net cash provided (used) by investing activities		(65,997	)		(39,115	)		(12,073	)		608			(7,097	)
Net cash provided (used) by financing activities		1,339			—			409			(6,215	)		—

      Net cash provided by operating activities increased $10.5 million in the first three months of 2006 as compared to the first three months of 2005 due primarily to a $4.2 million increase in operating income, adjusted for non-cash expenses, and a $6.3 million increase in cash from changes in working capital. The $6.3 million increase in cash from changes in working capital resulted primarily from the payment, in the first quarter of 2005, of an extra month of liquid sales invoices outstanding at the end of 2004.

      Net cash provided by operating activities decreased $4.8 million in 2005 as compared to 2004 due primarily to expenditures incurred for repairs following Hurricane Katrina that have not yet been reimbursed by Discovery’s insurance carrier. The 2005 use of cash related to accounts receivable included a $24.6 million outstanding receivable from a subsidiary of Williams for the marketing activities associated with the TGP and TETCO open seasons discussed under “— Recent Events”; this was offset by a similar change in accounts payable for a balance due to the shippers on TGP and TETCO. The 2005 use of cash related to accounts receivable also included other increases in customers’ outstanding balances of $8.6 million. The 2005 source of cash related to accounts payable also included a $7.7 million imbalance with a customer.

      Net cash provided by operating activities decreased $8.4 million in 2004 as compared to 2003 due primarily to the favorable impact in 2003 of improved accounts receivable collections. Working capital levels remained more constant in 2004 as compared to 2003. As a result, net cash provided by operating activities in 2004 did not include significant amounts from changes in working capital and reflected the return to more normal levels.

      Net cash provided by investing activities increased $7.7 million in the first three months of 2006 as compared to the first three months of 2005 due to higher capital expenditures in 2005 related primarily to capital expenditures for Discovery’s market expansion project and for the purchase of leased compressors at the Larose processing plant. Capital expenditures in the first three months of 2006 related primarily to the Tahiti pipeline lateral expansion project, which were funded from amounts previously escrowed and included on the balance sheet as restricted cash.

      During 2005, net cash used by investing activities included $44.6 million to fund escrow accounts for the Tahiti pipeline lateral project and related interest income and $21.4 million of capital expenditures for (1) the completion of the Front Runner and market expansion projects, (2) the initial expenditures for the Tahiti project, and (3) the purchase of leased compressors at the Larose processing plant. During 2004, net cash used by investing activities was primarily used for the construction of a gathering lateral to connect our pipeline system to the Front Runner prospect. During 2003, net cash used for investing activities included the $3.5 million purchase of a 12-inch gathering pipeline and $4.5 million of initial capital expenditures incurred for the construction of a gathering lateral to connect to Discovery’s pipeline system to the Front Runner prospect.

      Net cash used by financing activities in the first three months of 2006 includes:

•  $13.6 million of distributions paid to members, including a regular quarterly distribution of $11.0 million; partially offset by

•  $7.4 million of capital contributions from members for the construction of the Tahiti pipeline lateral expansion.

      During 2005, net cash provided by financing activities included capital contributions from members totaling $48.3 million for the construction of the Tahiti pipeline lateral expansion, the distribution of $43.8 million associated with Discovery’s operations prior to our initial public offering and a $3.2 million quarterly distribution to members in the fourth quarter of 2005. During 2003, Discovery’s members made capital contributions of $254.1 million in response to a cash call by Discovery. Discovery used these contributions to retire its outstanding debt of $253.7 million.

Contractual Obligations

      A summary of our contractual obligations as of December 31, 2005, is as follows (in thousands):

		2006		2007-2008		2009-2010		2011+			Total
Notes payable/long-term debt		$	—	$	—	$	—	$	—		$	—
Capital leases			—		—		—		—			—
Operating leases			30		55		10		—			95
Purchase obligations			5,135		2,928		240		120	(a)		8,423
Other long-term liabilities			—		—		—		—			—
	Total	$	5,165	$	2,983	$	250	$	120		$	8,518

(a)  Year 2011 represents one year of payments associated with an operating agreement whose term is tied to the life of the underlying gas reserves.

      Our equity investee, Four Corners, also has contractual obligations for which we are not contractually liable. These contractual obligations, however, will impact Four Corners’ ability to make cash distributions to us. A summary of Four Corners’ total contractual obligations as of December 31, 2005, is as follows (in thousands):

		2006		2007-2008		2009-2010		2011+		Total
Notes payable/long-term debt		$	—	$	—	$	—	$	—	$	—
Capital leases			—		—		—		—		—
Operating leases			12,223		1,960		759		3,120		18,062
Purchase obligations			13,178		—		—		—		13,178
Other long-term liabilities			—		—		—		—		—
	Total	$	25,401	$	1,960	$	759	$	3,120	$	31,240

      Our equity investee, Discovery, also has contractual obligations for which we are not contractually liable. These contractual obligations, however, will impact Discovery’s ability to make cash distributions to us. A summary of Discovery’s total contractual obligations as of December 31, 2005, is as follows (in thousands):

		2006		2007-2008		2009-2010		2011+		Total
Notes payable/long-term debt		$	—	$	—	$	—	$	—	$	—
Capital leases			—		—		—		—		—
Operating leases			854		1,712		1,716		4,109		8,391
Purchase obligations(a)			30,807		23,488		—		—		54,295
Other long-term liabilities			—		—		—		—		—
	Total	$	31,661	$	25,200	$	1,716	$	4,109	$	62,686

(a)  With the exception of $3.4 million of 2006 outstanding purchase orders, all other amounts are Tahiti-related expenditures that will be funded from the amounts escrowed for this project in September 2005 and capital contributions from members, including us. Please read — Outlook for 2006”.

Effects of Inflation

      Inflation in the United States has been relatively low in recent years and did not have a material impact on our results of operations for the three-year period ended December 31, 2005. It may in the future, however,

increase the cost to acquire or replace property, plant and equipment and may increase the costs of labor and supplies. Our operating revenues and costs are influenced to a greater extent by specific price changes in natural gas and NGLs. To the extent permitted by competition, regulation and our existing agreements, we have and will continue to pass along increased costs to our customers in the form of higher fees.

Regulatory Matters

      As of December 31, 2005, Discovery had deferred amounts of $6 million relating to retained system gas gains and the over-recovery of lost and unaccounted-for gas on the Discovery system. Certain shippers challenged Discovery’s right to retain these gains. FERC requested and received from Discovery additional information regarding both lost and unaccounted-for volumes and gas gains. Discovery responded to the information request and on October 31, 2005, FERC accepted the filing and no requests for rehearing were filed. As a result, we recognized the portion of this reserve for the period 2002 through 2004 of $10.7 million in 2005.

      Discovery’s natural gas pipeline transportation is subject to rate regulation by FERC under the Natural Gas Act. For more information on federal and state regulations affecting our business.

Environmental

      Our Conway storage facilities are subject to strict environmental regulation by the Underground Storage Unit within the Geology Section of the Bureau of Water of the KDHE under the Underground Hydrocarbon and Natural Gas Storage Program, which became effective on April 1, 2003.

      We are in the process of modifying our Conway storage facilities, including the caverns and brine ponds, and we expect our storage operations will be in compliance with the Underground Hydrocarbon and Natural Gas Storage Program regulations by the applicable required compliance dates. In 2003, we began to complete workovers on approximately 30 to 40 salt caverns per year and install, on average, a double liner on one brine pond per year. The incremental costs of these activities is approximately $5.5 million per year to complete the workovers and approximately $900,000 per year to install a double liner on a brine bond. In response to these increased costs, we raised our storage rates in 2004 by an amount sufficient to preserve our margins in this business. Accordingly, we do not believe that these increased costs have had a material effect on our business or results of operations. We expect on average to complete workovers on each of our caverns every five to ten years and install double liners on each of our brine ponds every 18 years. The KDHE has also advised us that a regulation relating to the metering of NGL volumes that are injected and withdrawn from our caverns may be interpreted and enforced to require the installation of meters at each of our well bores. We have informed the KDHE that we disagree with this interpretation, and the KDHE has asked us to provide it with additional information. We estimate that the cost of installing a meter at each of our well bores at Conway West and Mitchell would be approximately $3.9 million over three years.

      As of March 31, 2006, we had accrued environmental liabilities of $5.3 million related to four remediation projects at the Conway storage facilities. In 2004, we purchased an insurance policy that covers up to $5.0 million of remediation costs until an active remediation system is in place or April 30, 2008, whichever is earlier, excluding operation and maintenance costs and ongoing monitoring costs, for these four projects to the extent such costs exceed a $4.2 million deductible. The policy also covers costs incurred as a result of third party claims associated with then existing but unknown contamination related to the storage facilities. The aggregate limit under the policy for all claims is $25 million. In the omnibus agreement, Williams agreed to indemnify us for these remediation expenditures to the extent not recovered under the insurance policy, excluding costs of project management and soil and groundwater monitoring, and certain other environmental and related obligations arising out of or associated with the operation of the assets before the closing date of our initial public offering. There is an aggregate cap of $14.0 million on the total amount of indemnity coverage under the omnibus agreement, which will be reduced by actual recoveries under the environmental insurance policy, subject to a three-year limit from the closing date of our initial public offering. We estimate that the approximate cost of the project management and soil and groundwater monitoring associated with the four remediation projects at the Conway storage facilities and for which we will not be indemnified will be approximately $200,000 to $400,000 per year following the completion of remediation work. The benefit of the indemnification will be accounted for as a capital contribution to us by Williams as the costs are incurred.

      In connection with our operations at the Conway facilities, we are required by the KDHE regulations to provide assurance of our financial capability to plug and abandon the wells and abandon the brine facilities we operate at Conway. Williams had posted two letters of credit on our behalf in an aggregate amount of $17.5 million to guarantee our plugging and abandonment responsibilities for these facilities. We anticipate providing assurance in the form of letters of credit in future periods until such time as we obtain an investment-grade credit rating.

      In connection with the construction of Discovery’s pipeline, approximately 73 acres of marshland was traversed. Discovery is required to restore marshland in other areas to offset the damage caused during the initial construction. In Phase I of this project, Discovery created new marshlands to replace about half of the traversed acreage. Phase II, which will complete the project, began during 2005 and will cost approximately $2.0 million.

Qualitative and Quantitative Disclosures About Market Risk

      Market risk is the risk of loss arising from adverse changes in market rates and prices. The principal market risk to which we are exposed is commodity price risk for natural gas and NGLs. We were also exposed to the risk of interest rate fluctuations on our intercompany balances with Williams prior to the forgiveness of these balances by Williams in connection with our IPO.

Commodity Price Risk

      Certain of Four Corners’ and Discovery’s processing contracts are exposed to the impact of price fluctuations in the commodity markets, including the correlation between natural gas and NGL prices. In addition, price fluctuations in commodity markets could impact the demand for Four Corners’ and Discovery’s services in the future. Carbonate Trend and our fractionation and storage operations are not directly affected by changing commodity prices except for product imbalances, which are exposed to the impact of price fluctuation in NGL markets. Price fluctuations in commodity markets could also impact the demand for storage and fractionation services in the future. In connection with our IPO, Williams transferred to us a gas purchase contract for the purchase of a portion of our fuel requirements at the Conway fractionator at a market price not to exceed a specified level. This physical contract is intended to mitigate the fuel price risk under one of our fractionation contracts which contains a cap on the per-unit fee that we can charge, at times limiting our ability to pass through the full amount of increases in variable expenses to that customer. This physical contract is a derivative. However, we elected to account for this contract under the normal purchases exemption to the fair value accounting that would otherwise apply. We and Discovery do not currently use any other derivatives to manage the risks associated with these price fluctuations.

Interest Rate Risk

      Historically, our interest rate exposure was related to advances from Williams to our predecessor. The table below provides information as of December 31, 2004 about our interest rate risk. We had no borrowings and no interest rate risk as of December 31, 2005 and March 31, 2006.

	December 31, 2004
	Carrying		Fair
	Value		Value
	(In thousands)
Advances from Williams	$	186,024	$	186,024

      These advances were due on demand. Prior to the closing of our initial public offering, Williams forgave these advances to our predecessor. The variable interest rate was 7.4 percent at December 31, 2004.

Item 9.01. Financial Statements and Exhibits.

     (d) Exhibits.

Exhibit Number	Description
Exhibit 23.1	Consent of Ernst & Young LLP
Exhibit 99.1	Restated consolidated financial statements and notes of Williams Partners L.P.
Exhibit 99.2	Restated audited balance sheet of Williams Partners GP LLC as of December 31, 2005 and unaudited balance sheet of Williams Partners GP LLC as of June 30, 2006

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	WILLIAMS PARTNERS L.P.
	By:	Williams Partners GP LLC,
		its General Partner
Date: September 22, 2006	By:	/s/ Donald R. Chappel Donald R. Chappel
		Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
Exhibit 23.1	Consent of Ernst & Young LLP
Exhibit 99.1	Restated consolidated financial statements and notes of Williams Partners L.P.
Exhibit 99.2	Restated audited balance sheet of Williams Partners GP LLC as of December 31, 2005 and unaudited balance sheet of Williams Partners GP LLC as of June 30, 2006

EX-23.1

Exhibit 23.1

Consent Of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-128881) pertaining to the Williams Partners GP LLC Long-term Incentive Plan dated October 7, 2005, of our report dated September 15, 2006, with respect to the consolidated financial statements of Williams Partners L.P. and our report dated September 15, 2006, with respect to the consolidated balance sheet of Williams Partners GP LLC, included in this Current Report (Form 8-K), filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP

Tulsa, Oklahoma
September 15, 2006

EX-99.1

Exhibit 99.1

Report of Independent Registered Public Accounting Firm

The Board of Directors of Williams Partners GP LLC

  General Partner of Williams Partners L.P.

We have audited the accompanying consolidated balance sheets of Williams Partners L.P. as of December 31, 2005 and 2004, and the related consolidated statements of operations, partners’ capital, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Williams Partners L.P. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

As described in Note 7, effective January 1, 2003, Williams Partners L.P adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, and effective December 31, 2005, adopted Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations. Also, as described in Note 1, the financial statements have been restated to reflect the acquisition of a 25.1 percent membership interest in Williams Four Corners LLC.

                 /s/ Ernst & Young LLP

Tulsa, Oklahoma
September 15, 2006

WILLIAMS PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS*

			December 31,
							March 31,
			2005		2004		2006
							(Unaudited)
			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	6,839	$	—	$	4,315
	Accounts receivable:
		Trade		1,840		2,150		1,424
		Other		2,104		1,388		1,524
	Product imbalance			760		—		295
	Gas purchase contract — affiliate			5,320		—		5,155
	Prepaid expenses			1,133		749		1,370
	Total current assets			17,996		4,287		14,083
Investment in Williams Four Corners				152,003		155,753		153,309
Investment in Discovery Producer Services				150,260		147,281		149,641
Property, plant and equipment, net				67,931		67,793		68,239
Gas purchase contract — noncurrent — affiliate				4,754		—		3,565
Total assets			$	392,944	$	375,114	$	388,837
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
	Accounts payable:
		Trade	$	3,906	$	2,480	$	3,269
		Affiliate		4,729		1,980		2,378
	Product imbalance			—		1,071		—
	Deferred revenue			3,552		3,305		222
	Accrued liabilities			2,373		3,924		2,718
	Total current liabilities			14,560		12,760		8,587
Advances from affiliate				—		186,024		—
Environmental remediation liabilities				3,964		3,909		3,964
Other noncurrent liabilities				762		—		763
Commitments and contingent liabilities (Note 13)
Partners’ capital:
	Common unitholders (7,006,146 outstanding at December 31, 2005 and March 31, 2006 (unaudited))			108,526		—		108,627
	Subordinated unitholders (7,000,000 outstanding at December 31, 2005 and March 31, 2006 (unaudited))			108,491		—		108,490
	Pre-IPO owners’ equity/ General partner			156,641		172,421		158,406
		Total partners’ capital		373,658		172,421		375,523
Total liabilities and partners’ capital			$	392,944	$	375,114	$	388,837

* Restated as discussed in Note 1.

See accompanying notes to consolidated financial statements.

1

WILLIAMS PARTNERS L.P.

CONSOLIDATED STATEMENTS OF INCOME*

													Three Months Ended
			Year Ended December 31,										March 31,
			2005			2004			2003				2006			2005
												(Unaudited)
			(In thousands)
Revenues:
	Storage:
		Affiliate	$	—		$	—		$	2,426			$	—		$	—
		Third-party		20,290			15,318			9,223				5,105			4,388
	Fractionation			10,770			9,070			8,221				3,953			2,430
	Gathering			3,063			3,883			5,513				733			880
	Product sales:
		Affiliate		13,400			506			—				6,141			2,829
		Third-party		63			7,947			1,263				—			63
	Other			4,183			4,252			1,648				1,131			779
Total revenues				51,769			40,976			28,294				17,063			11,369
Costs and expenses:
	Operating and maintenance expense:
		Affiliate		13,378			9,986			8,789				4,000			2,653
		Third-party		11,733			9,390			5,171				3,691			3,075
	Product cost			11,821			6,635			1,263				5,723			2,735
	Depreciation and accretion			3,619			3,686			3,707				900			905
	General and administrative expense:
		Affiliate		4,186			2,534			1,738				1,415			687
		Third-party		1,137			79			75				533			19
	Taxes other than income			700			716			640				207			192
	Other — net			(6	)		(91	)		(133	)			—			—
Total costs and expenses				46,568			32,935			21,250				16,469			10,266
	Operating income			5,201			8,041			7,044				594			1,103
Equity earnings — Williams Four Corners				28,668			24,236			22,276				8,387			6,499
Equity earnings — Discovery Producer Services				8,331			4,495			3,447				3,781			2,212
Impairment of investment in Discovery Producer Services				—			(13,484	)		—
Interest expense:
	Affiliate			(7,461	)		(11,980	)		(4,176	)			(15	)		(2,805	)
	Third-party			(777	)		(496	)		—				(221	)		(199	)
Interest income				165			—			—				70			—
Income before cumulative effect of change in accounting principle				34,127			10,812			28,591				12,596			6,810
Cumulative effect of change in accounting principle				(802	)		—			(1,182	)			—			—
Net income			$	33,325		$	10,812		$	27,409			$	12,596		$	6,810
Allocation of net income:
	Net income		$	33,325									$	12,596
	Net income applicable to pre-partnership operations, allocated to general partner			28,391										8,387
	Net income			4,934										4,209
	Allocation of net loss to general partner			(1,273	)									(689	)
	Allocation of net income to limited partners		$	6,207									$	4,898
Basic and diluted net income per limited partner unit:
	Income before cumulative effect of change in accounting principle:
		Common units	$	0.49									$	0.35
		Subordinated units	$	0.49									$	0.35
	Cumulative effect of change in accounting principle:
		Common units	$	(0.05	)
		Subordinated units	$	(0.05	)
	Net income:
		Common units	$	0.44
		Subordinated units	$	0.44
Weighted average number of units outstanding:
	Common units			7,001,366										7,006,146
	Subordinated units			7,000,000										7,000,000

* Restated as discussed in Note 1.

See accompanying notes to consolidated financial statements.

2

WILLIAMS PARTNERS L.P.
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL*

							Pre-IPO
							Owner’s			Accumulated
							Equity/			Other			Total
	Limited Partners						General			Comprehensive			Partners’
	Common			Subordinated			Partner			Income (Loss)			Capital
	(In thousands)
Balance — January 1, 2003	$	—		$	—		$	193,475		$	(1,962	)	$	191,513
Comprehensive income:
Net income — 2003		—			—			27,409			—			27,409
Other comprehensive income:
Net unrealized losses		—			—			—			(116	)		(116	)
Net reclassification into earnings of derivative instrument losses		—			—			—			2,078			2,078
Total other comprehensive income														1,962
Total comprehensive income														29,371
Adjustment in basis of investment in Williams Four Corners		—			—			(29,037	)		—			(29,037	)
Balance — December 31, 2003		—			—			191,847			—			191,847
Net income — 2004		—			—			10,812			—			10,812
Adjustment in basis of investment in Williams Four Corners		—			—			(30,238	)		—			(30,238	)
Balance — December 31, 2004		—			—			172,421			—			172,421
Accounts receivable not contributed		—			—			(2,640	)					(2,640	)
Net income		3,104			3,103			27,118			—			33,325
Contribution of net assets of predecessor companies (2,000,000 common units; 7,000,000 subordinated units)		10,471			106,427			(9,582	)		—			107,316
Issuance of units to public (5,000,000 common units)		100,247			—			—			—			100,247
Offering costs		(4,291	)		—			—			—			(4,291	)
Adjustment in basis of investment in Williams Four Corners		—			—			(32,244	)		—			(32,244	)
Cash distributions ($.1484 per unit)		(1,039	)		(1,039	)		(42	)		—			(2,120	)
Issuance of common units (6,146 common units)		34			—			—			—			34
Contributions pursuant to the Omnibus Agreement		—			—			1,610			—			1,610
Balance — December 31, 2005		108,526			108,491			156,641			—			373,658
Net income — three months ended March 31, 2006 (unaudited)		2,449			2,449			7,698			—			12,596
Cash distributions ($.35 per unit) (unaudited)		(2,452	)		(2,450	)		(100	)		—			(5,002	)
Contributions pursuant to the Omnibus Agreement (unaudited)		—			—			1,248			—			1,248
Adjustment in basis of investment in Williams Four Corners (unaudited)		—			—			(7,081	)		—			(7,081	)
Other (unaudited)		104			—			—			—			104
Balance — March 31, 2006 (unaudited)	$	108,627		$	108,490		$	158,406		$	—		$	375,523

* Restated as discussed in Note 1.

See accompanying notes to consolidated financial statements.

3

WILLIAMS PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS*

														Three Months Ended
					Year Ended December 31,									March 31,
					2005			2004			2003			2006			2005
														(Unaudited)
					(In thousands)
OPERATING ACTIVITIES:
	Net income before cumulative effect of change in accounting principle				$	34,127		$	10,812		$	28,591		$	12,596		$	6,810
	Adjustments to reconcile to cash provided by operations:
		Depreciation and accretion				3,619			3,686			3,707			900			905
		Impairment of investment in Discovery Producer Services				—			13,484			—			—			—
		Amortization of gas purchase contract — affiliate				2,033			—			—			1,354			—
		Distributions in excess of/ (undistributed) equity earnings of:
			Williams Four Corners			(28,668	)		(24,236	)		(22,276	)		(8,387	)		(6,499	)
			Discovery Producer Services			(7,051	)		(4,495	)		(3,447	)		619			(2,212	)
		Cash provided (used) by changes in assets and liabilities:
			Accounts receivable			(3,045	)		261			(850	)		996			678
			Other current assets			(384	)		(362	)		(187	)		(237	)		(45	)
			Accounts payable			4,215			2,711			(274	)		(3,028	)		(1,495	)
			Accrued liabilities			(737	)		(417	)		(320	)		345			(209	)
			Deferred revenue			247			775			1,108			(3,330	)		(3,200	)
		Other, including changes in noncurrent assets and liabilities				(2,463	)		484			592			567			1,212
			Net cash provided (used) by operating activities			1,893			2,703			6,644			2,395			(4,055	)
INVESTING ACTIVITIES:
		Capital expenditures				(3,688	)		(1,534	)		(1,167	)		(1,165	)		(212	)
		Contribution to Discovery Producer Services				(24,400	)		—			(101,643	)		—			—
			Net cash used by investing activities			(28,088	)		(1,534	)		(102,810	)		(1,165	)		(212	)
FINANCING ACTIVITIES:
		Proceeds from sale of common units				100,247			—			—			—			—
		Payment of offering costs				(4,291	)		—			—			—			—
		Distributions to The Williams Companies, Inc.				(58,756	)		—			—			—			—
		Changes in advances from affiliates — net				(3,656	)		(1,169	)		96,166			—			4,267
		Distributions to unitholders				(2,120	)		—			—			(5,002	)		—
		Contributions per omnibus agreement				1,610			—			—			1,248			—
				Net cash provided (used) by financing activities		33,034			(1,169	)		96,166			(3,754	)		4,267
Increase (decrease) in cash and cash equivalents						6,839			—			—			(2,524	)		—
Cash and cash equivalents at beginning of period						—			—			—			6,839			—
Cash and cash equivalents at end of period					$	6,839		$	—		$	—		$	4,315		$	—

* Restated as discussed in Note 1.

See accompanying notes to consolidated financial statements.

4

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

      Unless the context clearly indicates otherwise, references in this report to “we,” “our,” “us” or like terms refer to Williams Partners L.P. and its subsidiaries. Unless the context clearly indicates otherwise, references to “we,” “our,” and “us” include the operations of Williams Four Corners LLC (“Four Corners”) and Discovery Producer Services LLC (“Discovery”), in which we own a 25.1 percent and 40.0 percent interest, respectively. When we refer to Four Corners by name, we are referring exclusively to its businesses and operations. When we refer to Discovery by name, we are referring exclusively to its businesses and operations.

      We are a Delaware limited partnership that was formed in February 2005, to acquire and own (1) a 40 percent interest in Discovery; (2) the Carbonate Trend gathering pipeline off the coast of Alabama; (3) three integrated natural gas liquids (“NGL”) product storage facilities near Conway, Kansas; and (4) a 50 percent undivided ownership interest in a fractionator near Conway, Kansas. Prior to the closing of our initial public offering (the “IPO”) in August 2005, the 40 percent interest in Discovery was held by Williams Energy, L.L.C. (“Energy”) and Williams Discovery Pipeline LLC; the Carbonate Trend gathering pipeline was held in Carbonate Trend Pipeline LLC (“CTP”), which was owned by Williams Mobile Bay Producers Services, L.L.C.; and the NGL product storage facilities and the interest in the fractionator were owned by Mid-Continent Fractionation and Storage, LLC (“MCFS”). All of these are wholly owned indirect subsidiaries of The Williams Companies, Inc. (collectively “Williams”). Williams Partners GP LLC, a Delaware limited liability company, was also formed in February 2005, to serve as our general partner. We also formed Williams Partners Operating LLC (“Williams OLLC”), an operating limited liability company (wholly owned by us) through which all our activities are conducted.

      The accompanying unaudited interim consolidated financial statements include all normal recurring adjustments that, in the opinion of our management, are necessary to present fairly our financial position at March 31, 2006, and the results of operations and cash flows for the three months ended March 31, 2005 and 2006.

Initial Public Offering and Related Transactions

      On August 23, 2005, we completed our IPO of 5,000,000 common units representing limited partner interests in us at a price of $21.50 per unit. The proceeds of $100.2 million, net of the underwriters’ discount and a structuring fee totaling $7.3 million, were used to:

•  distribute $58.8 million to Williams, in part to reimburse Williams for capital expenditures relating to the assets contributed to us and for a gas purchase contract contributed to us;

•  provide $24.4 million to make a capital contribution to Discovery to fund an escrow account required in connection with the Tahiti pipeline lateral expansion project;

•  provide $12.7 million of additional working capital; and

•  pay $4.3 million of expenses associated with the IPO and related formation transactions.

      Concurrent with the closing of the IPO, the 40 percent interest in Discovery and all of the interests in CTP and MCFS were contributed to us by Williams’ subsidiaries in exchange for an aggregate of 2,000,000 common units and 7,000,000 subordinated units. The public, through the underwriters of the offering, contributed $107.5 million ($100.2 million net of the underwriters’ discount and a structuring fee) to us in exchange for 5,000,000 common units, representing a 35 percent limited partner interest in us. Additionally, at the closing of the IPO, the underwriters fully exercised their option to purchase 750,000 common units from Williams’ subsidiaries at the IPO price of $21.50 per unit, less the underwriters’ discount and a structuring fee.

5

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

   Acquisition of Four Corners

     On June 20, 2006, we acquired a 25.1 percent membership interest in Four Corners pursuant to an agreement with Williams Energy Services, LLC, Williams Field Services Group, LLC, Williams Field Services Company, LLC (“WFSC”), Williams OLLC and us for aggregate consideration of $360 million. Prior to closing, WFSC contributed to Four Corners its natural gas gathering, processing and treating assets in the San Juan Basin in New Mexico and Colorado. Because Four Corners was an affiliate of Williams at the time of the acquisition, the transaction was between entities under common control, and has been accounted for at historical cost. Accordingly, our consolidated financial statements and notes have been restated to reflect the combined historical results of our investment in Four Corners throughout the periods presented. The acquisition increased net income $28.5 million, $24.2 million and $22.2 million for 2005, 2004 and 2003, respectively. The acquisition increased net income for the periods ended March 31, 2006 and March 31, 2005, $8.4 million and $6.5 million, respectively. The acquisition had no impact on earnings per unit as pre-acquisition earnings were allocated to our general partner.

     We financed this acquisition with a combination of equity and debt. On June 20, 2006, we issued 6,600,000 common units at a price of $31.25 per unit. Additionally, at the closing, the underwriters fully exercised their option to purchase 990,000 common units at a price of $31.25 per unit. This offering yielded net proceeds of $227.1 million after the payment of underwriting discounts and commissions of $10.1 million, but before the payment of other offering expenses. On June 20, 2006, we also issued $150 million aggregate principal of unsecured 7.5 percent Senior Notes due 2011 under a private placement debt agreement. Proceeds from this issuance totaled $146.8 million (net of $3.2 million of related expenses).

Note 2. Description of Business

      We are principally engaged in the business of gathering, transporting and processing natural gas and fractionating and storing NGLs. Operations of our businesses are located in the United States and are organized into two reporting segments: (1) Gathering and Processing and (2) NGL Services. Our Gathering and Processing segment includes our equity investments in Discovery and Four Corners, and the Carbonate Trend gathering pipeline. Our NGL Services segment includes the Conway fractionation and storage operations.

      Gathering and Processing. We own a 25.1 percent interest in Four Corners. Four Corners’ natural gas gathering, processing and treating assets consist of, among other things, (1) 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, (2) 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 (3) the Milagro and Esperanza natural gas treating plants in New Mexico, which have a combined carbon dioxide treating capacity of 750 MMcf/d.

     We own a 40 percent interest in Discovery, which includes a wholly owned subsidiary, Discovery Gas Transmission LLC. Discovery owns (1) a 273-mile natural gas gathering and transportation pipeline system, located primarily off the coast of Louisiana in the Gulf of Mexico, (2) a 600 MMcf/d cryogenic natural gas processing plant in Larose, Louisiana, (3) a 32,000 barrels per day (“bpd”) natural gas liquids fractionator in Paradis, Louisiana and (4) two onshore liquids pipelines, including a 22-mile mixed NGL pipeline connecting the gas processing plant to the fractionator and a 10-mile condensate pipeline connecting the gas processing plant to a third party oil gathering facility. 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. Hence, this equity investment is considered part of the Gathering and Processing segment.

     Our Carbonate Trend gathering pipeline is an unregulated sour gas gathering pipeline consisting of approximately 34 miles of pipeline off the coast of Alabama.

      NGL Services. Our Conway storage facilities include three underground NGL storage facilities in the Conway, Kansas, area with a storage capacity of approximately 20 million barrels. The facilities are connected via a series of pipelines. The storage facilities receive daily shipments of a variety of products, including mixed NGLs and fractionated products. In addition to pipeline connections, one facility offers truck and rail service.

      Our Conway fractionation facility is located near Conway, Kansas, and has a capacity of approximately 107,000 bpd. We own a 50 percent undivided interest in these facilities representing capacity of approximately 53,500 bpd. ConocoPhillips and ONEOK Partners, L.P. are the other owners. Williams operates the facility pursuant to an operating agreement that extends until May 2011. The fractionator separates mixed NGLs into five products: ethane/propane mix, propane, normal butane, isobutane and natural gasoline. Portions of these products are then transported and stored at our Conway storage facilities.

Note 3. Summary of Significant Accounting Policies

      Basis of Presentation. The consolidated financial statements have been prepared based upon accounting principles generally accepted in the United States and include the accounts of the parent and our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated.

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      Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

      Estimates and assumptions which, in the opinion of management, are significant to the underlying amounts included in the financial statements and for which it would be reasonably possible that future events or information could change those estimates include:

•  impairment assessments of investments and long-lived assets;

•  loss contingencies;

•  environmental remediation obligations; and

•  asset retirement obligations.

      These estimates are discussed further throughout the accompanying notes.

      Proportional Accounting for the Conway Fractionator. No separate legal entity exists for the fractionator. We hold a 50 percent undivided interest in the fractionator property, plant and equipment, and we are responsible for our proportional share of the costs and expenses of the fractionator. As operator of the facility, we incur the liabilities of the fractionator (except for certain fuel costs purchased directly by one of the co-owners) and are reimbursed by the co-owners for their proportional share of the total costs and expenses. Each co-owner is responsible for the marketing of their proportional share of the fractionator’s capacity. Accordingly, we reflect our proportionate share of the revenues and costs and expenses of the fractionator in the Consolidated Statements of Income; and we reflect our proportionate share of the fractionator property, plant and equipment in the Consolidated Balance Sheets. Liabilities in the Consolidated Balance Sheets include those incurred on behalf of the co-owners with corresponding receivables from the co-owners. Accounts receivable also includes receivables from our customers for fractionation services.

      Cash and Cash Equivalents. Cash and cash equivalents include demand and time deposits, certificates of deposit and other marketable securities with maturities of three months or less when acquired.

      Accounts Receivable. Accounts receivable are carried on a gross basis, with no discounting, less an allowance for doubtful accounts. No allowance for doubtful accounts is recognized at the time the revenue which generates the accounts receivable is recognized. We estimate the allowance for doubtful accounts based on existing economic conditions, the financial condition of our customers, and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been unsuccessful.

      Investments. We account for our investments in Discovery and Four Corners under the equity method since we control neither. Prior to 2004, the excess of the carrying value of our investment over the amount of underlying equity in net assets of Discovery represented interest capitalized during construction on the funds advanced to Discovery for construction prior to Discovery’s receipt of external financing. This excess was being amortized on a straight-line basis over the life of the related assets. In 2004, we recognized an other-than-temporary impairment of our investment. As a result, Discovery’s underlying equity exceeds the carrying value of our investment at December 31, 2005.

      Property, Plant and Equipment. Property, plant and equipment is recorded at cost. We base the carrying value of these assets on capitalized costs, useful lives and salvage values. Depreciation of property, plant and equipment is provided on the straight-line basis over estimated useful lives. Expenditures for maintenance and repairs are expensed as incurred. Expenditures that enhance the functionality or extend the

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useful lives of the assets are capitalized. The cost of property, plant and equipment sold or retired and the related accumulated depreciation is removed from the accounts in the period of sale or disposition. Gains and losses on the disposal of property, plant and equipment are recorded in the Consolidated Statements of Income.

      We record an asset and a liability equal to the present value of each expected future asset retirement obligation (“ARO”). The ARO asset is depreciated in a manner consistent with the depreciation of the underlying physical asset. We measure changes in the liability due to passage of time by applying an interest method of allocation. This amount is recognized as an increase in the carrying amount of the liability and as a corresponding accretion expense included in operating income.

      Revenue Recognition. The nature of our businesses result in various forms of revenue recognition. Our Gathering and Processing segment recognizes revenue from gathering services when the services have been performed. Our NGL Services segment recognizes (1) fractionation revenues when services have been performed and product has been delivered, (2) storage revenues under prepaid contracted storage capacity evenly over the life of the contract as services are provided and (3) product sales revenue when the product has been delivered.

      Gas Purchase Contract. In connection with the IPO, Williams transferred to us a gas purchase contract for the purchase of a portion of our fuel requirements at the Conway fractionator at a market price not to exceed a specified level. The gas purchase contract is for the purchase of 80,000 MMBtu per month and terminates on December 31, 2007. The initial value of this contract is being amortized to expense over the contract life.

      Product Imbalances. In the course of providing fractionation and storage services to our customers, we realize product gains and losses that are reflected as product imbalance receivables or payables on the Consolidated Balance Sheets. These imbalances are valued based on the market price of the products when the imbalance is identified and are evaluated for the impact of a change in market prices at the balance sheet date. Certain of these product gains and losses arise due to the product blending process at the fractionator. Others are realized when storage caverns are emptied. Storage caverns are emptied periodically to determine whether any product gains or losses have occurred, and as these caverns are emptied, it is possible that the resulting product gains or losses could have a material impact to the results of operations for the period during which the cavern drain is performed.

      Impairment of Long-Lived Assets and Investments. We evaluate our long-lived assets of identifiable business activities for impairment when events or changes in circumstances indicate the carrying value of such assets may not be recoverable. The impairment evaluation of tangible long-lived assets is measured pursuant to the guidelines of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” When an indicator of impairment has occurred, we compare our management’s estimate of undiscounted future cash flows attributable to the assets to the carrying value of the assets to determine whether the carrying value of the assets is recoverable. We apply a probability weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes. If the carrying value is not recoverable, we determine the amount of the impairment recognized in the financial statements by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value.

      We evaluate our investments for impairment when events or changes in circumstances indicate, in our management’s judgment, that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, we compare our estimate of fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and we consider the decline in value to be

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other than temporary, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment.

      Judgments and assumptions are inherent in our management’s estimate of undiscounted future cash flows used to determine recoverability of an asset and the estimate of an asset’s fair value used to calculate the amount of impairment to recognize. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the financial statements.

      Income Taxes. We are not a taxable entity for federal and state income tax purposes. The tax on our net income is borne by the individual partners through the allocation of taxable income. Net income for financial statement purposes may differ significantly from taxable income of unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under our partnership agreement. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partner’s tax attributes in us is not available to us.

      Environmental. Environmental expenditures that relate to current or future revenues are expensed or capitalized based upon the nature of the expenditures. Expenditures that relate to an existing contamination caused by past operations that do not contribute to current or future revenue generation are expensed. Accruals related to environmental matters are generally determined based on site-specific plans for remediation, taking into account our prior remediation experience. Environmental contingencies are recorded independently of any potential claim for recovery.

      Capitalized Interest. We capitalize interest on major projects during construction to the extent we incur interest expense. Historically, Williams provided the financing for capital expenditures; hence, the rates used to calculate the interest were based on Williams’ average interest rate on debt during the applicable period in time.

      Earnings Per Unit. In accordance with the Emerging Issues Task Force (“EITF”) Issue 03-6, we use the two-class method to calculate basic and diluted earnings per unit whereby net income, adjusted for items specifically allocated to our general partner, is allocated on a pro-rata basis between unitholders and our general partner. Basic and diluted earnings per unit are based on the average number of common and subordinated units outstanding. Basic and diluted earnings per unit are equivalent as there are no dilutive securities outstanding.

      Recent Accounting Standards. In January 2006, Williams adopted statement of Financial Accounting Standards No. 123 (R), “Share-Based Payment.” Accordingly, payroll costs charged to us by our general partner reflect additional compensation costs related to the adoption of this accounting standard. These costs relate to Williams’ common stock equity awards made between Williams and its employees. The cost is charged to us through specific allocations of certain employees if they directly support our operations, and through an allocation methodology among all Williams affiliates if they provide indirect support. These allocated costs are based on a three-factor formula, which considers revenues; property, plant and equipment; and payroll. Our and Williams’ adoption of this Statement will not have a material impact on our Consolidated Financial Statements.

      In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,” which will be applied prospectively for inventory costs incurred in fiscal years beginning after June 15, 2005. The Statement amends Accounting Research Bulletin (ARB) No. 43, Chapter 4, “Inventory Pricing,” to clarify that abnormal amounts of certain costs should be recognized as current period charges and that the allocation of overhead costs should be based on the normal capacity of the production facility. The impact of this Statement on our Consolidated Financial Statements will not be material.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,” which is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, and will be applied prospectively. The Statement amends APB Opinion No. 29, “Accounting for Nonmonetary Transactions.” The guidance in APB Opinion No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged but includes certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3,” which is effective prospectively for reporting a change in accounting principle for fiscal years beginning after December 15, 2005. The Statement changes the reporting of a change in accounting principle to require retrospective application to prior periods’ financial statements, except for explicit transition provisions provided for in any existing accounting pronouncements, including those in the transition phase when SFAS No. 154 becomes effective.

Note 4. Allocation of Net Income and Distributions

      The allocation of net income between our general partner and limited partners at December 31, 2005 is as follows (in thousands):

Allocation of net income to general partner:
	Net income for the period August 23, 2005 through December 31, 2005, excluding pre-partnership operations of Four Corners		$	4,934
	Charges direct to general partner:
		Reimbursable general and administrative costs		1,400
	Income before direct charges to general partner			6,334
	General partner’s share of net income			2.0	%
	General partner’s allocated share of net income before direct charges			127
	Direct charges to general partner			(1,400	)
	Net income for the period August 23, 2005 through December 31, 2005 allocated to general partner			(1,273	)
	Net loss applicable to period through August 22, 2005			(103	)
	Net income applicable to pre-partnership operations of Four Corners			28,494
Net income allocated to general partner			$	27,118
Net income			$	33,325
Net income allocated to general partner				27,118
Net income allocated to limited partners			$	6,207

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      The allocation of net income between our general partner and limited partners for the three months ended March 31, 2006 is as follows (in thousands) (unaudited):

Allocation to general partner:
	Net income, excluding pre-partnership operations of Four Corners		$	4,209
	Charges direct to general partner:
		Reimbursable general and administrative costs		789
	Income before direct charges to general partner			4,998
	General partner’s share of net income			2.0	%
	General partner’s allocated share of net income before direct charges			100
	Direct charges to general partner			(789	)
	Amount allocated to general partner			(689	)
	Net income applicable to pre-partnership operations of Four Corners			8,387
Net income allocated to general partner			$	7,698
Net income			$	12,596
Net income allocated to general partner				7,698
Net income allocated to limited partners			$	4,898

      The reimbursable general and administrative costs represent the general and administrative costs charged against our income that are required to be reimbursed to us by our general partner under the terms of the Omnibus Agreement.

      We paid or have authorized payment of the following cash distributions during 2005 and 2006 (in thousands, except for per unit amounts):

	Per Unit		Common		Subordinated		General		Total Cash
Payment Date	Distribution		Units		Units		Partner		Distribution
11/14/2005(a)	$	0.1484	$	1,039	$	1,039	$	42	$	2,120
2/14/2006	$	0.3500	$	2,452	$	2,450	$	100	$	5,002
5/15/2006(b)(unaudited)	$	0.3800	$	2,662	$	2,660	$	109	$	5,431

(a)	This distribution represents the $0.35 per unit minimum quarterly distribution pro-rated for the 39-day period following the IPO closing date (August 23, 2005 through September 30, 2005).
(b)	The board of directors of our general partner declared this cash distribution on April 27, 2006 to be paid on May 15, 2006 to unitholders of record at the close of business on May 8, 2006.

Note 5. Related Party Transactions

      The employees of our operated assets and all of our general and administrative employees are employees of Williams. Williams directly charges us for the payroll costs associated with the operations employees and certain general and administrative employees. Williams carries the obligations for most employee-related benefits in its financial statements, including the liabilities related to the employee retirement and medical plans and paid time off. Certain of these costs are charged back to the other Conway fractionator co-owners. Our share of those costs are charged to us through affiliate billings and reflected in Operating and maintenance expense — Affiliate in the accompanying Consolidated Statements of Income.

      Williams charges its affiliates, including us and its Midstream segment, of which we are a part, for certain corporate administrative expenses that are directly identifiable or allocable to the affiliates. Direct costs charged from Williams represent the direct costs of services provided by Williams on our behalf. Prior to the IPO, a portion of the charges allocated to the Midstream segment were then reallocated to us. These allocated corporate administrative expenses are based on a three-factor formula, which considered revenues;

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property, plant and equipment; and payroll. Certain of these costs are charged back to the other Conway fractionator co-owners. Our share of these costs is reflected in General and administrative expense — Affiliate in the accompanying Consolidated Statements of Income. In management’s estimation, the allocation methodologies used are reasonable and result in a reasonable allocation to us of our costs of doing business incurred by Williams. Under the Omnibus Agreement, Williams gives us a quarterly credit for general and administrative expenses. These amounts are reflected as a capital contribution from our general partner. The annual amounts of the credits are as follows: $3.9 million in 2005 ($1.4 million pro-rated for the portion of the year from August 23 to December 31), $3.2 million in 2006, $2.4 million in 2007, $1.6 million in 2008 and $0.8 million in 2009.

      At December 31, 2005, we have a contribution receivable from our general partner of $0.3 million, which is netted against Partners’ capital on the Consolidated Balance Sheets, for amounts reimbursable to us under the Omnibus Agreement.

      We purchase fuel for the Conway fractionator, including fuel on behalf of the co-owners, from Williams Power Company (“Power”), a wholly owned subsidiary of Williams. These purchases are made at market rates at the time of purchase. In connection with the IPO, Williams transferred to us a gas purchase contract for the purchase of a portion of our fuel requirements at the Conway fractionator at a market price not to exceed a specified level. The amortization of this contract is reflected in Operating and maintenance expense — Affiliate in the accompanying Consolidated Statements of Income. The carrying value of this contract is reflected as Gas purchase contract — affiliate and Gas purchase contract — noncurrent — affiliate on the Consolidated Balance Sheets.

      During a portion of 2003, we provided propane storage, fractionation, transportation and terminaling services to subsidiaries of Williams that have subsequently been sold. In December 2004, we began selling surplus propane and other NGLs to Power, which takes title to the product and resells it, for its own account, to end users. Revenues associated with these activities are reflected as Affiliate revenues on the Consolidated Statements of Income. Correspondingly, we purchase ethane and other NGLs from Power to replenish deficit product positions. The transactions conducted between us and Power are transacted at current market prices for the products.

      A summary of the general and administrative expenses directly charged and allocated to us, fuel purchases from Power and NGL purchases from Power for the periods stated is as follows:

		2005		2004		2003
		(In thousands)
General and administrative expenses, including amounts subsequently charged to co-owners:
	Allocated	$	3,494	$	2,078	$	1,392
	Directly charged		992		456		346
Operating and maintenance expenses, including amounts subsequently charged to co-owners:
	Fuel purchases, including amortization of gas contract		24,478		17,053		12,843
	Salaries and benefits		3,514		3,473		2,105
NGL purchases			15,657		1,271		—

      The per-unit gathering fee associated with two of our Carbonate Trend gathering contracts was negotiated on a bundled basis that includes transportation along a segment of a pipeline system owned by Transcontinental Gas Pipe Line Company (“Transco”), a wholly owned subsidiary of Williams. The fees we realize are dependent upon whether our customer elects to utilize this Transco capacity. When they make this election, our gathering fee is determined by subtracting the Transco tariff from the total negotiated fee. The

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rate associated with the capacity agreement is based on a Federal Energy Regulatory Commission tariff that is subject to change. Accordingly, if the Transco rate increases, our net gathering fees for these two contracts may be reduced. The customers with these bundled contracts must make an annual election to receive this capacity. For 2005 and 2006, only one of our customers has elected to utilize this capacity.

      We historically participated in Williams’ cash management program; thus, we carried no cash balance on our Consolidated Balance Sheet at December 31, 2004. Effective with the IPO, we began maintaining our own bank accounts but continue to utilize Williams’ personnel to manage our cash and investments. As of December 31, 2004, our net Advances from affiliate consisted of an unsecured promissory note agreement with Williams for both advances to and from Williams. The advances were due on demand; however, Williams did not historically require repayment. Therefore, Advances from affiliate at December 31, 2004 were classified as noncurrent. Prior to the closing of the IPO, Williams forgave the advances due to them at the date the net assets were transferred to us. Accordingly, the advances balance was transferred to Partners’ capital at that date.

      Affiliate interest expense includes interest on the advances with Williams calculated using Williams’ weighted average cost of debt applied to the outstanding balance of the advances with Williams and commitment fees on the working capital credit facility (see Note 11). The interest rate on the advances with Williams was 7.373 percent at December 31, 2004.

Note 6. Equity Investments

     We use the equity method to account for our 25.1 percent ownership interest in Four Corners and our 40 percent ownership interest in Discovery. At December 31, 2005, Williams owned an additional 20 percent ownership interest in Discovery and the remaining 74.9 percent ownership interest in Four Corners.

     Williams Four Corners

     Four Corners made distributions to Williams associated with Four Corners’ operations prior to our acquisition of a 25.1 percent ownership interest. These distributions resulted in a revised basis used for the calculation of the 25.1 percent interest transferred to us; therefore, the carrying value of our 25.1 percent interest in Four Corners and partners’ capital decreased $32.2 million in 2005, $30.2 million in 2004, $29.0 million in 2003 and $7.1 million during the first three months of 2006.

     Four Corners reimburses Williams for actual payroll and employee benefit costs incurred on its behalf. In addition, Four Corners is charged for certain administrative expenses by Williams. These charges are either directly identifiable or allocated to Four Corners. Direct charges are for goods and services provided by Williams at our request. Allocated charges are allocated based on a three-factor formula, which considers revenues, property, plant and equipment and payroll. In management’s estimation, the allocation methodologies used are reasonable and result in a reasonable allocation to Four Corners.

     The operation of the Four Corners gathering system includes the routine movement of gas across gathering systems. This activity is referred to as “crosshauling.” Crosshauling typically involves the movement of some natural gas between gathering systems at established interconnect points to optimize flow. As a result, Four Corners must purchase gas for delivery to customers at certain plant outlets and has excess volumes to sell at other plant outlets. These purchases and sales transactions are conducted for Four Corners by Power, a wholly owned indirect subsidiary of Williams, at current market prices. Historically, Power has not charged Four Corners a fee for providing this service, but has occasionally benefited from price differentials that historically existed from time to time between the plant outlets.

     Four Corners also purchases natural gas for fuel and shrink replacement from Power. These purchases are made at market rates at the time of purchase.

     Prior to April 2003, Four Corners purchased steam from Power for use at the Milagro treating plant. The steam was produced from the operation of the Milagro cogeneration facility owned by Power. Beginning in April 2003, Four Corners purchased natural gas for steam conversion services. The natural gas cost charged to Four Corners by Power has been favorably impacted by Power’s fixed price natural gas fuel contracts. This impact was approximately $9.0 million annually during the periods presented as compared to estimated market prices. These arrangements expire in the fourth quarter of 2006. Williams is evaluating the means by which Four Corners will obtain waste heat to generate steam beyond the life of this agreement and expect that Four Corner’s Milagro natural gas fuel costs will increase due to Williams’ expectation that future market prices will exceed prices associated with these agreements.

     Four Corners sells the NGLs to which they take title to Williams Midstream Marketing and Risk Management, LLC (“WMMRM”), a wholly owned indirect subsidiary of Williams.

     One of Four Corner’s major customers is Williams Production Company (“WPC”), a wholly owned subsidiary of Williams. WPC is one of the largest natural gas producers in the San Juan Basin and Four Corners provides natural gas gathering, treating and processing services to WPC under several contracts.

     Discovery Producer Services

      Of the total ownership interest owned by Williams prior to the transfer of 40 percent to us, a portion was acquired by Williams in April 2005 resulting in a revised basis used for the calculation of the 40 percent interest transferred to us in connection with the IPO. As a result, the carrying value of our 40 percent interest in Discovery and Partners’ capital decreased $11.0 million during the second quarter of 2005.

      On August 22, 2005, Discovery made a distribution of approximately $43.8 million to Williams and the other member of Discovery at that date. This distribution was associated with Discovery’s operations prior to the IPO; hence, we did not receive any portion of this distribution. The distribution resulted in a revised basis used for the calculation of the 40 percent interest transferred to us in connection with the IPO. As a result, the carrying value of our 40 percent interest in Discovery and Partners’ capital decreased $17.5 million during the third quarter of 2005.

      In September 2005, we made a $24.4 million capital contribution to Discovery for a substantial portion of our share of the estimated future capital expenditures for the Tahiti pipeline lateral expansion project.

      Williams is the operator of Discovery. Discovery reimburses Williams for actual payroll and employee benefit costs incurred on its behalf. Additionally, Discovery purchases a portion of the natural gas from Williams to meet its fuel and shrink requirement at its processing plant.

      Discovery pays Williams a monthly operations and management fee to cover the cost of accounting services, computer systems and management services provided to it. Discovery also has an agreement with Williams pursuant to which Williams markets the NGLs and excess natural gas to which Discovery takes title.

      During 2004, we performed an impairment review of this investment because of Williams’ planned purchase of an additional interest in Discovery at an amount below its carrying value. As a result, we recorded a $13.5 million impairment of our investment in Discovery based on a probability-weighted estimation of fair value of our investment. In December 2003, each of the owners made an additional

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investment in Discovery, which was subsequently used by Discovery to repay maturing debt. Our proportionate share of this additional investment was approximately $101.6 million.

      Due to the significance of each investment’s equity earnings to our results of operations, the summarized financial position and results of operations for 100 percent of Four Corners and 100 percent of Discovery are presented below (in thousands).

	December 31,						March 31,
Williams Four Corners LLC	2005			2004			2006
							(Unaudited)
Current assets		18,832		$	24,927		$	19,348
Non-current assets		25,228			18,657			25,420
Property, plant and equipment		591,034			601,710			585,470
Current liabilities		(27,978	)		(24,138	)		(18,329	)
Non-current liabilities		(1,526	)		(626	)		(1,118	)
Members’ capital	$	605,590		$	620,530		$	610,791

							Three Months Ended
	Years Ended December 31,						March 31,
	2005		2004		2003		2006		2005
							(Unaudited)
Revenues:
Affiliate		259,390		231,124		149,089		62,188		59,470
Third-party		203,813		197,099		205,045		53,484		48,433
Costs and expenses:
Affiliate		121,175		115,589		94,008		38,932		29,247
Third-party		227,813		216,078		171,379		43,325		52,761
Income before cumulative effect of change in accounting principle	$	114,215	$	96,556	$	88,747	$	33,415	$	25,895
Net income	$	113,521	$	96,556	$	88,417	$	33,415	$	25,895

Discovery Producer Services LLC

	December 31,
							March 31,
	2005			2004			2006
							(Unaudited)
Current assets	$	70,525		$	67,534		$	62,700
Non-current restricted cash		44,559			—			41,859
Property, plant and equipment		344,743			356,385			340,935
Current liabilities		(45,070	)		(31,572	)		(27,475	)
Non-current liabilities		(1,121	)		(702	)		(1,146	)
Members’ capital	$	413,636		$	391,645		$	416,873

									Three Months Ended
	Years Ended December 31,								March 31,
	2005			2004			2003		2006			2005
									(Unaudited)
Revenues:
Affiliate		76,341			68,766			66,305		52,786			17,497
Third-party		46,404			31,110			36,873		9,334			9,792
Costs and expenses:
Affiliate		13,319			4,945			12,267		3,915			5,965
Third-party		89,278			83,811			72,252		48,952			16,077
Interest expense		—			—			9,611
Interest income		(1,685	)		(550	)		—		(626	)		(284	)
Foreign exchange loss		1,005			—			—		427			—
Income before cumulative effect of change in accounting principle	$	20,828		$	11,670		$	9,048	$	9,452		$	5,531
Net income	$	20,652		$	11,670		$	8,781	$	9,452		$	5,531

Note 7. Property, Plant and Equipment

      Property, plant and equipment, at cost, is as follows:

		December 31,				Estimated
						Depreciable
		2005		2004		Lives
		(In thousands)
Land and right of way		$	2,373	$	2,373
Fractionation plant and equipment			16,646		16,555	30 years
Storage plant and equipment			65,892		63,632	30 years
Pipeline plant and equipment			23,684		23,684	20-30 years
Construction work in progress			1,886		566
Other			1,492		1,490	5-45 years
	Total property, plant and equipment		111,973		108,300
Accumulated depreciation			44,042		40,507
	Net property, plant and equipment	$	67,931	$	67,793

      We adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” on January 1, 2003. As a result, we recorded a liability of $993,000 representing the present value of expected future asset retirement

14

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

obligations at January 1, 2003, and a decrease to earnings of $992,000 reflected as a cumulative effect of a change in accounting principle. An additional $107,000 reduction of earnings is reflected as a cumulative effect of a change in accounting principle for our 40 percent interest in Discovery’s cumulative effect of a change in accounting principle related to the adoption of SFAS No. 143. Also, an additional $83,000 reduction of earnings is reflected as a cumulative effect of a change in accounting principle for our 25.1 percent interest in Four Corner’s cumulative effect of change in accounting principle related principle related to the adoption of SFAS No. 143.

      Effective December 31, 2005, we adopted FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations.” This Interpretation clarifies that an entity is required to recognize a liability for the fair value of a conditional ARO when incurred if the liability’s fair value can be reasonably estimated. The Interpretation clarifies when an entity would have sufficient information to reasonably estimate the fair value of an ARO. As required by the new standard, we reassessed the estimated remaining life of all our assets with a conditional ARO. We recorded additional liabilities totaling $573,000 equal to the present value of expected future asset retirement obligations at December 31, 2005. The liabilities are slightly offset by a $16,000 increase in property, plant and equipment, net of accumulated depreciation, recorded as if the provisions of the Interpretation had been in effect at the date the obligation was incurred. The net $557,000 reduction to earnings is reflected as a cumulative effect of a change in accounting principle for the year ended 2005. An additional $70,000 reduction of earnings is reflected as a cumulative effect of a change in accounting principle for our 40 percent interest in Discovery’s cumulative effect of a change in accounting principle related to the adoption of FIN No. 47. Also, an additional $174,000 reduction of earnings is reflected as a cumulative effect of a change in accounting principle for our 25.1 percent interest in Four Corner’s cumulative effect of a change in accounting principle related to the adoption of FIN No. 47. If the Interpretation had been in effect at the beginning of 2003, the impact to our income from continuing operations and net income would have been immaterial.

      The obligations relate to underground storage caverns and the associated brine ponds. At the end of the useful life of each respective asset, we are legally obligated to properly abandon the storage caverns, empty the brine ponds and restore the surface, and remove any related surface equipment.

      A rollforward of our asset retirement obligation for 2004 and 2005 is presented below.

	2005			2004
	(In thousands)
Balance, January 1	$	760		$	801
Liabilities incurred during the period		91			79
Liabilities settled during the period		(204	)		(166	)
Accretion expense		1			83
Estimate revisions		(460	)		—
FIN No. 47 revisions		574			—
Gain on settlements		—			(37	)
Balance, December 31	$	762		$	760

15

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 8. Accrued Liabilities

      Accrued liabilities are as follows:

	December 31,
	2005		2004
	(In thousands)
Environmental remediation — current portion	$	1,424	$	1,633
Customer volume deficiency payment		—		749
Asset retirement obligation — current portion		—		760
Employee costs — affiliate		387		317
Taxes other than income		375		359
Other		187		106
	$	2,373	$	3,924

Note 9. Long-Term Incentive Plan

      In November 2005, our general partner adopted the Williams Partners GP LLC Long-Term Incentive Plan (the “Plan”) for employees, consultants and directors of our general partner and its affiliates who perform services for us. The Plan permits the grant of awards covering an aggregate of 700,000 common units. These awards may be in the form of options, restricted units, phantom units or unit appreciation rights. The compensation committee of our general partner’s board of directors administers the Plan.

      During November and December 2005, our general partner granted 6,146 restricted units pursuant to the Plan to members of our general partner’s board of directors who are not officers or employees of our general partner or its affiliates. These restricted units vest six months from grant date. We recognized compensation expense of $34 thousand associated with these awards in 2005.

Note 10. Major Customers, Concentrations of Credit Risk and Financial Instruments

Major Customers

      In 2005, four customers, Williams Power Company (an affiliate company) SemStream, L.P., Enterprise and BP Products North America, Inc. (BP) accounted for approximately 25.9 percent, 17.1 percent, 14.1 percent and 13.5 percent, respectively, of our total revenues. In 2004, three customers, SemStream, L.P., BP and Enterprise accounted for approximately 20.6 percent, 16.1 percent and 16.0 percent, respectively, of our total revenues. In 2003, four customers, BP, Enterprise, Chevron and Williams Power Company, accounted for approximately 24.6 percent, 15.9 percent, 14.7 percent and 11.6 percent, respectively, of our total revenues. SemStream, L.P., BP, Enterprise and Williams Power Company are customers of the NGL Services segment. Chevron is a customer of the Gathering and Processing segment.

      Four Corners’ largest customer, on a percentage of revenues basis, is WMMRM, which purchases and resells substantially all of the NGLs to which we take title. WMMRM accounted for 48 percent, 47 percent and 35 percent of revenues in 2005, 2004 and 2003, respectively. The percentages for the remaining three largest customers are as follows:

	2005	2004	2003
Customer A	15%	15%	19%
Customer B	11	12	12
Customer C	4	5	10

      Discovery’s two major customers, Williams and Eni Petroleum Company, Inc. (“Eni”) accounted for $70.8 million (58 percent) and $8.5 million (7 percent), respectively, of our total revenues in 2005, and approximately $57.8 million (58 percent) and $10.9 million (11 percent), respectively, of our total revenues in 2004. Discovery’s three major customers, Williams, Eni and Pogo Producing Company accounted for approximately $54 million (52 percent), $12.2 million (12 percent) and $12 million (12 percent), respectively, of our total revenues in 2003.

      Our Carbonate Trend gathering pipeline has only two customers. The loss of either of these customers, unless replaced, would have a significant impact on the Gathering and Processing segment.

Concentrations of Credit Risk

      Our cash equivalents consist of high-quality securities placed with various major financial institutions with credit ratings at or above AA by Standard & Poor’s or Aa by Moody’s Investor’s Service.

16

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the concentration of accounts receivable by service and segment.

		December 31,
		2005		2004
		(In thousands)
Gathering and Processing:
	Natural gas gathering	$	525	$	441
NGL Services:
	Fractionation services		532		468
	Amounts due from fractionator partners		1,834		1,381
	Storage		793		1,241
	Other		260		7
		$	3,944	$	3,538

      Our fractionation and storage customers include crude refiners; propane wholesalers and retailers; gas producers; natural gas plant, fractionator and storage operators; and NGL traders and pipeline operators. Our two Carbonate Trend natural gas gathering customers are oil and gas producers. While sales to our customers are unsecured, we routinely evaluate their financial condition and creditworthiness.

Financial Instruments

      We used the following methods and assumptions to estimate the fair value of financial instruments.

      Cash and cash equivalents. The carrying amounts reported in the balance sheets approximate fair value due to the short-term maturity of these instruments.

      Advances from affiliates. At December 31, 2004, our net Advances from affiliate consisted of an unsecured promissory note agreement with Williams for both advances to and from Williams. The carrying amounts reported in the Consolidated Balance Sheet approximate fair value as this instrument had an interest rate approximating market.

	2005				2004
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In thousands)
Cash and cash equivalents	$	6,839	$	6,839		—		—
Advances from affiliates		—		—	$	186,024	$	186,024

Note 11. Credit Facilities and Leasing Activities

Credit Facilities

      On May 20, 2005, Williams amended its $1.275 billion revolving credit facility (“Williams facility”), which is available for borrowings and letters of credit, to allow us to borrow up to $75 million under the Williams facility. Borrowings under the Williams facility mature on May 3, 2007. Our $75 million borrowing limit under the Williams facility is available for general partnership purposes, including acquisitions, but only to the extent that sufficient amounts remain unborrowed by Williams and its other subsidiaries. At December 31, 2005, letters of credit totaling $378 million had been issued on behalf of Williams by the participating institutions under the Williams facility and no revolving credit loans were outstanding.

     In May 2006, Williams replaced its $1.275 billion secured credit facility with a $1.5 billion unsecured credit agreement. The new facility contains similar terms and covenants as the prior facility, but contains additional restrictions on asset sales, certain subsidiary debt and sale-leaseback transactions.

      Interest on any borrowings under the Williams facility is calculated based on our choice of two methods: (i) a fluctuating rate equal to the facilitating bank’s base rate plus an applicable margin or (ii) a periodic fixed rate equal to LIBOR plus an applicable margin. We are also required to pay or reimburse Williams for

17

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

an annual commitment fee, .3 percent and 0.325 percent at March 31, 2006 and December 31, 2005 respectively, based on the unused portion of its $75 million borrowing limit under the Williams facility. The applicable margin, 1.75 percent at March 31, 2006 and December 31, 2005, and the commitment fee are based on Williams’ senior unsecured long-term debt rating. Under the Williams facility, Williams and certain of its subsidiaries, other than us, are required to comply with certain financial and other covenants. Significant financial covenants under the Williams facility to which Williams is subject include the following:

•  ratio of debt to net worth no greater than (i) 70 percent through December 31, 2005, and (ii) 65 percent for the remaining term of the agreement;

•  ratio of debt to net worth no greater than 55 percent for Northwest Pipeline Corporation, a wholly owned subsidiary of Williams, and Transco; and

•  ratio of EBITDA to interest, on a rolling four quarter basis, no less than (i) 2.0 for any period after March 31, 2005 through December 31, 2005, and (ii) 2.5 for the remaining term of the agreement.

      In August 2005, we entered into a $20 million revolving credit facility (the “credit facility”) with Williams as the lender. The credit facility is available exclusively to fund working capital requirements. Borrowings under the credit facility mature on May 3, 2007 and bear interest at the same rate as for borrowings under the Williams facility described above. We pay a commitment fee to Williams on the unused portion of the credit facility of 0.30 percent annually. We are required to reduce all borrowings under the credit facility to zero for a period of at least 15 consecutive days once each 12-month period prior to the maturity date of the credit facility. No amounts have been drawn on this facility.

Leasing Activities

      We lease automobiles for use in our NGL Services segment. We account for these leases as operating leases. Future minimum annual rentals under non-cancelable operating leases as of December 31, 2005 are as follows (in thousands):

2006	$	30
2007		29
2008		27
2009		10
2010		—
	$	96

      Total rent expense was $116,000, $110,000 and $119,000 for 2003, 2004 and 2005, respectively.

Note 12. Partners’ Capital

      Of the 7,006,146 common units outstanding at December 31, 2005, 5,756,146 are held by the public, with the remaining 1,250,000 held by our affiliates. All of the 7,000,000 subordinated units are held by our affiliates.

      Upon expiration of the subordination period, each outstanding subordinated unit will convert into one common unit and will then participate pro rata with the other common units in distributions of available cash.

18

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The subordination period will end on the first day of any quarter beginning after June 30, 2008 or when we meet certain financial tests provided for in our partnership agreement.

      Significant information regarding rights of the limited partners include the following:

•  Right to receive distributions of available cash within 45 days after the end of each quarter.

•  No limited partner shall have any management power over our business and affairs; the general partner shall conduct, direct and manage our activities.

•  The general partner may be removed if such removal is approved by the unitholders holding at least 66²/3  percent of the outstanding units voting as a single class, including units held by our general partner and its affiliates.

•  Right to receive information reasonably required for tax reporting purposes within 90 days after the close of the calendar year.

      Our general partner is entitled to incentive distributions if the amount we distribute to unitholders with respect to any quarter exceeds specified target levels shown below:

				General
Quarterly Distribution Target Amount (per unit)	Unitholders			Partner
Minimum quarterly distribution of $0.35		98	%		2	%
Up to $0.4025		98			2
Above $0.4025 up to $0.4375		85			15
Above $0.4375 up to $0.5250		75			25
Above $0.5250		50			50

      In the event of a liquidation, all property and cash in excess of that required to discharge all liabilities will be distributed to the unitholders and our general partner, in proportion to their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.

Other Comprehensive Income

      The main component of our accumulated other comprehensive loss is our share of Discovery’s accumulated other comprehensive loss which is related to a cash flow hedge of interest rate risk held by Discovery in 2003.

Note 13. Commitments and Contingencies

      Environmental Matters. We are a participant in certain environmental remediation activities associated with soil and groundwater contamination at our Conway storage facilities. These activities relate to four projects that are in various remediation stages including assessment studies, cleanups and/or remedial operations and monitoring. We continue to coordinate with the Kansas Department of Health and Environment (“KDHE”) to develop screening, sampling, cleanup and monitoring programs. The costs of such activities will depend upon the program scope ultimately agreed to by the KDHE and are expected to be paid over the next two to nine years.

      In 2004, we purchased an insurance policy that covers up to $5 million of remediation costs until an active remediation system is in place or April 30, 2008, whichever is earlier, excluding operation and maintenance costs and ongoing monitoring costs, for these projects to the extent such costs exceed a $4.2 million deductible. The policy also covers costs incurred as a result of third party claims associated with then existing but unknown contamination related to the storage facilities. The aggregate limit under the policy for all claims is $25 million. In addition, under an omnibus agreement with Williams entered into at the

19

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

closing of the IPO, Williams has agreed to indemnify us for the $4.2 million deductible (less amounts expended prior to the closing of the IPO) of remediation expenditures not covered by the insurance policy, excluding costs of project management and soil and groundwater monitoring. There is a $14 million cap on the total amount of indemnity coverage under the omnibus agreement, which will be reduced by actual recoveries under the environmental insurance policy. There is also a three-year time limitation from the IPO closing date, August 23, 2005. The benefit of this indemnification will be accounted for as a capital contribution to us by Williams as the costs are reimbursed. We estimate that the approximate cost of this project management and soil and groundwater monitoring associated with the four remediation projects at the Conway storage facilities and for which we will not be indemnified will be approximately $200,000 to $400,000 per year following the completion of the remediation work.

      At December 31, 2005, and March 31, 2006 (unaudited), we had accrued liabilities totaling $5.4 million and $5.3 million, respectively, for these costs. It is reasonably possible that we will incur losses in excess of our accrual for these matters. However, a reasonable estimate of such amounts cannot be determined at this time because actual costs incurred will depend on the actual number of contaminated sites identified, the amount and extent of contamination discovered, the final cleanup standards mandated by KDHE and other governmental authorities and other factors.

      Hurricane Costs. At March 31, 2006 (unaudited), Williams had an insurance receivable of $965,000 for costs incurred to assess property damage caused by Hurricane Ivan in 2004 to the Carbonate Trend pipeline. Although Williams believes these costs to be recoverable under its property damage insurance, it has not received approval from its insurer and it is reasonably possible that the insurer will deny some or all of this claim. If Williams’ is unable to recover these costs from insurance we will recognize a loss for these costs as they relate to the Carbonate Trend pipeline. This loss will be fully allocated to our general partner.

      Other. We are not currently a party to any legal proceedings but are a party to various administrative and regulatory proceedings that have arisen in the ordinary course of our business. Management, including internal counsel, currently believes that the ultimate resolution of the foregoing matters, taken as a whole, and after consideration of amounts accrued, insurance coverage or other indemnification arrangements, will not have a material adverse effect upon our future financial position.

Note 14. Segment Disclosures

      Our reportable segments are strategic business units that offer different products and services. The Gathering and Processing segment includes our ownership interest in Four Corners, our ownership interest in Discovery and the Carbonate Trend gathering pipeline. The NGL Services segment includes three integrated NGL storage facilities and a 50 percent undivided interest in a fractionator near Conway, Kansas. The segments are managed separately because each segment requires different industry knowledge, technology and marketing strategies. The accounting policies of the segments are the same as those described in Note 3, Summary of Significant Accounting Policies. Long-lived assets are comprised of property, plant and equipment.

20

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			Gathering &		NGL
			Processing		Services		Total
			(In thousands)
2005
Segment revenues			$	3,515	$	48,254	$	51,769
Operating and maintenance expense				714		24,397		25,111
Product cost				—		11,821		11,821
Depreciation and accretion				1,200		2,419		3,619
Direct general and administrative expenses				2		1,068		1,070
Other, net				—		694		694
Segment operating income				1,599		7,855		9,454
Equity earnings - Williams Four Corners				28,668		—		28,668
Equity earnings - Discovery Producer Services				8,331		—		8,331
Segment profit			$	38,598	$	7,855	$	46,453
Reconciliation to the Consolidated Statement of Income:
	Segment operating income						$	9,454
	General and administrative expenses:
		Allocated — affiliate						(3,194	)
		Third-party direct						(1,059	)
	Combined operating income						$	5,201
Other financial information:
Segment assets			$	323,012	$	64,579	$	387,591
Other assets and eliminations								5,353
Total assets							$	392,944
Equity method investments:
	Williams Four Corners		$	152,003	$	—	$	152,003
	Discovery Producer Services			150,260		—		150,260
Additions to long-lived assets				—		3,688		3,688

21

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Gathering &			NGL
		Processing			Services		Total
		(In thousands)
2004
Segment revenues		$	4,833		$	36,143	$	40,976
Operating and maintenance expense			572			18,804		19,376
Product cost			—			6,635		6,635
Depreciation and accretion			1,200			2,486		3,686
Direct general and administrative expenses			—			535		535
Other, net			—			625		625
Segment operating income			3,061			7,058		10,119
Equity earnings - Williams Four Corners			24,236			—		24,236
Equity earnings - Discovery Producer Services			4,495			—		4,495
Impairment of investment			(13,484	)		—		(13,484	)
Segment profit		$	18,308		$	7,058	$	25,366
Reconciliation to the Consolidated Statement of Income:
	Segment operating income						$	10,119
	Allocated general and administrative expenses							(2,078	)
	Combined operating income						$	8,041
Other financial information:
Total assets		$	322,738		$	52,376	$	375,114
Equity method investments:
	Williams Four Corners		155,753			—		155,753
	Discovery Producer Services		147,281			—		147,281
Additions to long-lived assets			—			1,622		1,622

22

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Gathering &		NGL
		Processing		Services		Total
		(In thousands)
2003
Segment revenues		$	5,513	$	22,781	$	28,294
Operating and maintenance expense			379		13,581		13,960
Product cost			—		1,263		1,263
Depreciation and accretion			1,200		2,507		3,707
Direct general and administrative expenses			—		421		421
Other, net			—		507		507
Segment operating income			3,934		4,502		8,436
Equity earnings - Williams Four Corners			22,276		—		22,276
Equity earnings - Discovery Producer Services			3,447		—		3,447
Segment profit		$	29,657	$	4,502	$	34,159
Reconciliation to the Consolidated Statement of Income:
	Segment operating income					$	8,436
	Allocated general and administrative expenses						(1,392	)
	Combined operating income					$	7,044
Other financial information:
Total assets		$	339,524	$	52,381	$	391,905
Equity Method investments:
	Williams Four Corners		161,755		—		161,755
	Discovery Producer Services		156,269		—		156,269
Additions to long-lived assets			—		1,176		1,176

23

WILLIAMS PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			Gathering &		NGL
			Processing		Services		Total
			(In thousands)
Three Months Ended March 31, 2006 (unaudited)
Segment revenues			$	733	$	16,330	$	17,063
Operating and maintenance expense				242		7,449		7,691
Product cost				—		5,723		5,723
Depreciation and accretion				300		600		900
Direct general and administrative expense				2		301		303
Taxes other than income				—		207		207
Segment operating income				189		2,050		2,239
Equity earnings - Williams Four Corners				8,387		—		8,387
Equity earnings - Discovery Producer Services				3,781		—		3,781
Segment profit			$	12,357	$	2,050	$	14,407
Reconciliation to the Consolidated Statements of Income:
	Segment operating income						$	2,239
	General and administrative expenses:
		Allocated — affiliate						(1,117	)
		Third party-direct						(528	)
	Combined operating income						$	594
Three Months Ended March 31, 2005 (unaudited)
Segment revenues			$	880	$	10,489	$	11,369
Operating and maintenance expense				107		5,621		5,728
Product cost				—		2,735		2,735
Depreciation and accretion				300		605		905
Direct general and administrative expense				—		203		203
Taxes other than income				—		192		192
Segment operating income				473		1,133		1,606
Equity earnings - Williams Four Corners				6,499		—		6,499
Equity earnings - Discovery Producer Services				2,212		—		2,212
Segment profit			$	9,184	$	1,133	$	10,317
Reconciliation to the Consolidated Statements of Income:
	Segment operating income						$	1,606
	Allocated general and administrative expense							(503	)
	Combined operating income						$	1,103

Note 15. Subsequent Events

Long-Term Debt

     On June 20, 2006, we and Williams Partners Finance Corporation issued $150.0 million aggregate principal of 7.5 percent senior unsecured notes in a private debt placement. Williams Partners Finance Corporation is our wholly owned subsidiary organized for the sole purpose of co-issuing the notes. The maturity date of the notes is June 15, 2011. Interest is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2006. Debt issuance costs associated with the notes totaled $3.2 million and are being amortized over the life of the notes.

     In connection with the issuance of the $150.0 million senior unsecured notes, sold in a private debt placement to qualified institutional buyers, we entered into a registration rights agreement with the initial purchasers of the senior unsecured notes whereby we agreed to conduct a registered exchange offer of exchange notes in exchange for the senior unsecured notes or cause to become effective a shelf registration statement providing for resale of the senior unsecured notes. If we fail to comply with certain obligations under the registration rights agreement, we will be required to pay liquidated damages in the form of additional cash interest to the holders of the senior unsecured notes. Upon the occurrence of such a failure to comply, the interest rate on the senior unsecured notes shall be increased by 0.25 percent per annum during the 90-day period immediately following the occurrence of such failure to comply and shall increase by 0.25 percent per annum 90 days thereafter until all defaults have been cured, but in no event shall such aggregate additional interest exceed 0.50 percent per annum.

     The terms of the senior notes are governed by an indenture that contains affirmative and negative covenants that, among other things, limit (1) our ability and the ability of our subsidiaries to incur liens securing indebtedness, (2) mergers, consolidations and transfers of all or substantially all of our properties or assets, (3) Williams Partners Finance’s ability to incur additional indebtedness and (4) Williams Partners Finance’s ability to engage in any business not related to obtaining money or arranging financing for us or our other subsidiaries. We use the equity method of accounting for our investments in Discovery and Four Corners, and neither will be classified as our subsidiary under the indenture so long as we continue to own a minority interest in such entity. As a result, neither Discovery nor Four Corners will be subject to the restrictive covenants in the indenture. The indenture also contains customary events of default, upon which the trustee or the holders of the senior notes may declare all outstanding senior notes to be due and payable immediately.

     We may redeem the senior notes at our option in whole or in part at any time or from time to time prior to June 15, 2011, at a redemption price per note equal to the sum of (1) the then outstanding principal amount thereof, plus (2) accrued and unpaid interest, if any, to the redemption date, plus (3) a specified “make-whole” premium (as defined in the indenture). Additionally, upon a change of control (as defined in the indenture), each holder of the senior notes will have the right to require us to repurchase all or any part of such holder’s senior notes at a price equal to 101 percent of the principal amount of the senior notes plus accrued and unpaid interest. Except upon a change of control as described in the prior sentence, we are not required to make mandatory redemption or sinking fund payments with respect to the senior notes or to repurchase the senior notes at the option of the holders.

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WILLIAMS PARTNERS L.P.

QUARTERLY FINANCIAL DATA

(Unaudited)

      Summarized quarterly financial data are as follows (thousands, except per-unit amounts):

			First		Second		Third			Fourth
			Quarter		Quarter		Quarter			Quarter
2005
Revenues			$	11,369	$	12,176	$	12,176		$	16,048
Costs and operating expenses				10,266		8,036		13,175			15,091
Income before cumulative effect of change in accounting principle				6,810		8,580		5,694			13,043
Net income				6,810		8,580		5,694			12,241
Basic and diluted net income (loss) per limited partner unit:
	Income (loss) before cumulative effect of change in accounting principle:
		Common units		NA		NA	$	(0.02	)	$	0.51
		Subordinated units		NA		NA	$	(0.02	)	$	0.51
	Cumulative effect of change in accounting principle:
		Common units		NA		NA	$	—		$	(0.05	)
		Subordinated units		NA		NA	$	—		$	(0.05	)
	Net income (loss):
		Common units		NA		NA	$	(0.02	)	$	0.46
		Subordinated units		NA		NA	$	(0.02	)	$	0.46

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
2004
Revenues	$	7,953	$	9,043	$	10,457	$	13,523
Costs and operating expenses		5,256		8,289		8,956		10,434
Income (loss) before cumulative effect of change in accounting principle		8,072		4,495		3,333		(5,089	)
Net income (loss)		8,072		4,495		3,333		(5,089	)

•  Net income for fourth-quarter 2005 includes our 40 percent share of Discovery’s favorable adjustment of $10.7 million related to amounts previously deferred for net system gains from 2002 through 2004 that were reversed following the acceptance in 2005 of a filing with the FERC.

•  Net loss for third-quarter 2005 includes a $3.4 million unfavorable product imbalance adjustments included in NGL services.

•  Net loss for fourth-quarter 2004 includes a $13.5 million impairment of our investment in Discovery (see Note 6).

25 EX-99.2 4 h39550exv99w2.htm RESTATED AUDITED BALANCE SHEET

Exhibit 99.2

Report of Independent Registered Public Accounting Firm

The Board of Directors of Williams Partners GP LLC

We have audited the accompanying consolidated balance sheet of Williams Partners GP LLC as of December 31, 2005. The consolidated balance sheet is the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated balance sheet based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for the opinion.

In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Williams Partners GP LLC, in conformity with U.S. generally accepted accounting principles.

As described in Note 1, the balance sheet has been restated to reflect the acquisition of a 25.1 percent membership interest in Williams Four Corners LLC.

/s/ Ernst & Young LLP

Tulsa, Oklahoma
September 15, 2006

WILLIAMS PARTNERS GP LLC
CONSOLIDATED BALANCE SHEETS
(In thousands)

	June 30,			December 31,
	2006			2005*
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	27,499		$	6,839
Accounts receivable:
Trade		1,060			1,840
Other		3,815			2,104
Gas purchase contract — affiliate		5,021			5,320
Product imbalance		1,563			760
Prepaid expenses		1,677			1,133
Other current assets		628			—
Total current assets		41,263			17,996
Investment in Williams Four Corners		156,544			152,003
Investment in Discovery Producer Services		148,388			150,260
Property, plant and equipment, net		68,436			67,931
Gas purchase contract — noncurrent — affiliate		2,377			4,754
Other		2,534			—
Total assets	$	419,542		$	392,944
LIABILITIES AND OWNERS’ EQUITY
Current liabilities:
Accounts payable:
Trade	$	5,477		$	3,906
Affiliate		2,709			4,846
Deferred revenue		7,036			3,552
Accrued liabilities		2,385			2,373
Total current liabilities		17,607			16,393
Long-term debt		150,000			—
Environmental remediation liabilities		3,964			3,964
Other noncurrent liabilities		766			762
Advances from affiliate		4,614			1,716
Minority interest		337,192			112,160
Commitments and contingent liabilities (Note 11)
Owners’ equity:
Owners’ equity		(87,101	)		259,665
Note receivable from parent		(7,500	)		—
Total owner’s equity		(94,601	)		259,665
Total liabilities and owners’ equity	$	419,542		$	392,944

* Restated as discussed in Note 1.

See accompanying notes to consolidated financial statements.

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WILLIAMS PARTNERS GP LLC
NOTES TO CONSOLIDATED BALANCE SHEETS

Note 1. Organization

     We are a Delaware limited partnership formed by The Williams Companies, Inc. (“Williams”) in February 2005, to become the general partner of Williams Partners L.P. (the “Partnership”). We currently own a 2 percent general partner interest and incentive distribution rights in the Partnership. However, due to the substantive control granted to us by the partnership agreement we consolidate our interest in the Partnership. Unless the context clearly indicates otherwise, references to “we,” “our,” “us,” or like terms refer to Williams Partners GP LLC and include the operations of the Partnership. We are a wholly owned subsidiary of Williams.

     The Partnership is a Delaware limited partnership formed in February 2005, to acquire and own (1) a 40 percent interest in Discovery Producer Services LLC (“Discovery”) (2) the Carbonate Trend gathering pipeline off the coast of Alabama; (3) three integrated natural gas liquids (“NGL”) product storage facilities near Conway, Kansas; and (4) a 50 percent undivided ownership interest in a fractionator near Conway, Kansas. Prior to the closing of the Partnership’s initial public offering (the “IPO”) in August 2005, the 40 percent interest in Discovery was held by Williams Energy, L.L.C. (“Energy”) and Williams Discovery Pipeline LLC; the Carbonate Trend gathering pipeline was held in Carbonate Trend Pipeline LLC (“CTP”), which was owned by Williams Mobile Bay Producers Services, L.L.C.; and the NGL product storage facilities and the interest in the fractionator were owned by Mid-Continent Fractionation and Storage, LLC (“MCFS”). All of these are wholly owned indirect subsidiaries of The Williams Companies, Inc. (collectively “Williams”). Additionally, Williams Partners Operating LLC (“Williams OLLC”), an operating limited liability company (wholly owned by the Partnership) through which all the Partnership’s activities are conducted, was formed.

     The accompanying unaudited interim consolidated balance sheet includes all normal recurring adjustments that, in the opinion of management, are necessary to present fairly our financial position at June 30, 2006. Certain amounts in the consolidated balance sheet for 2005 have been reclassified to conform to the current period’s presentation.

     Initial Public Offering and Related Transactions

     On August 23, 2005, the Partnership completed an IPO of 5,000,000 common units representing limited partner interests in us at a price of $21.50 per unit. The proceeds of $100.2 million, net of the underwriters’ discount and a structuring fee totaling $7.3 million, were used to:

• distribute $58.8 million to Williams, in part to reimburse Williams for capital expenditures relating to the assets contributed to us and for a gas purchase contract contributed to us;

• provide $24.4 million to make a capital contribution to Discovery to fund an escrow account required in connection with the Tahiti pipeline lateral expansion project;

• provide $12.7 million of additional working capital; and

• pay $4.3 million of expenses associated with the IPO and related formation transactions.

     Concurrent with the closing of the IPO, the 40 percent interest in Discovery and all of the interests in CTP and MCFS were contributed to the Partnership by Williams’ subsidiaries in exchange for an aggregate of 2,000,000 common units and 7,000,000 subordinated units. The public, through the underwriters of the offering, contributed $107.5 million ($100.2 million net of the underwriters’ discount and a structuring fee) to the Partnership in exchange for 5,000,000 common units, representing a 35 percent limited partner interest in the Partnership. Additionally, at the closing of the IPO, the underwriters fully exercised their option to purchase 750,000 common units from Williams’ subsidiaries at the IPO price of $21.50 per unit, less the underwriters’ discount and a structuring fee.

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     Acquisition of Four Corners

     On June 20, 2006, the Partnership acquired a 25.1 percent membership interest in Williams Four Corners LLC (“Four Corners”) pursuant to an agreement with Williams Energy Services, LLC, Williams Field Services Group, LLC, Williams Field Services Company, LLC (“WFSC”), Williams OLLC and us for aggregate consideration of $360 million. Prior to closing, WFSC contributed to Four Corners its natural gas gathering, processing and treating assets in the San Juan Basin in New Mexico and Colorado and a 25.1 percent interest in Four Corners was contributed to us. At closing, we contributed the 25.1 percent interest in Four Corners to the Partnership and the Partnership distributed $360 million to us ($355.8 million net of our capital contribution related to a concurrent common unit offering by the Partnership). Of the $355.8 million, we loaned $7.5 million to our parent and the remainder was swept under Williams cash management program. We do not anticipate receiving repayment for these amounts and, therefore, have classified them as a component of owners’ equity. Because Four Corners was an affiliate of Williams at the time of the acquisition, the transaction was between entities under common control, and has been accounted for at historical cost. Accordingly, our consolidated balance sheet at December 31, 2005 and notes have been restated to reflect the combined historical results of our investment in Four Corners.

     The Partnership financed this acquisition with a combination of equity and debt. On June 20, 2006, the Partnership issued 6,600,000 common units at a price of $31.25 per unit. Additionally, at the closing, the underwriters fully exercised their option to purchase 990,000 common units at a price of $31.25 per unit. This offering yielded net proceeds of $227.1 million after the payment of underwriting discounts and commissions of $10.1 million, but before the payment of other offering expenses. On June 20, 2006, the Partnership also issued $150 million aggregate principal of unsecured 7.5 percent Senior Notes due 2011 under a private placement debt agreement (See Note 6 – Credit Facilities, Long-Term Debt and Leasing Activities). Proceeds from this issuance totaled $146.8 million (net of $3.2 million of related expenses).

Note 2. Description of Business

     We are principally engaged in the business of gathering, transporting and processing natural gas and fractionating and storing NGLs. Operations of our businesses are located in the United States and are organized into two reporting segments: (1) Gathering and Processing and (2) NGL Services. Our Gathering and Processing segment includes our equity investments in Discovery and Four Corners and the Carbonate Trend gathering pipeline. Our NGL Services segment includes the Conway fractionation and storage operations.

     Gathering and Processing. We own a 25.1 percent interest in Four Corners. Four Corners’ natural gas gathering, processing and treating assets consist of, among other things, (1) 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, (2) 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 (3) the Milagro and Esperanza natural gas treating plants in New Mexico, which have a combined carbon dioxide treating capacity of 750 MMcf/d.

     We own a 40 percent interest in Discovery, which includes a wholly owned subsidiary, Discovery Gas Transmission LLC. Discovery owns (1) a 273-mile natural gas gathering and transportation pipeline system, located primarily off the coast of Louisiana in the Gulf of Mexico, (2) a 600 MMcf/d cryogenic natural gas processing plant in Larose, Louisiana, (3) a 32,000 barrels per day (“bpd”) natural gas liquids fractionator in Paradis, Louisiana and (4) two onshore liquids pipelines, including a 22-mile mixed NGL pipeline connecting the gas processing plant to the fractionator and a 10-mile condensate pipeline connecting the gas processing plant to a third party oil gathering facility. 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. Hence, this equity investment is considered part of the Gathering and Processing segment.

     Our Carbonate Trend gathering pipeline is an unregulated sour gas gathering pipeline consisting of approximately 34 miles of pipeline off the coast of Alabama.

     NGL Services. Our Conway storage facilities include three underground NGL storage facilities in the Conway, Kansas, area with a storage capacity of approximately 20 million barrels. The facilities are connected via a series of

3

pipelines. The storage facilities receive daily shipments of a variety of products, including mixed NGLs and fractionated products. In addition to pipeline connections, one facility offers truck and rail service.

     Our Conway fractionation facility is located near McPherson, Kansas, and has a capacity of approximately 107,000 bpd. We own a 50 percent undivided interest in these facilities representing capacity of approximately 53,500 bpd. ConocoPhillips and ONEOK, Inc. are the other owners. Williams operates the facility pursuant to an operating agreement that extends until May 2011. The fractionator separates mixed NGLs into five products: ethane, propane, normal butane, isobutane and natural gasoline. Portions of these products are then transported and stored at our Conway storage facilities.

Note 3. Summary of Significant Accounting Policies

     Basis of Presentation. The consolidated balance sheets have been prepared based upon accounting principles generally accepted in the United States and include the accounts of the parent and our controlled subsidiaries. Intercompany accounts and transactions have been eliminated.

     Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated balance sheet and accompanying notes. Actual results could differ from those estimates.

     Estimates and assumptions which, in the opinion of management, are significant to the underlying amounts included in the balance sheet and for which it would be reasonably possible that future events or information could change those estimates include:

• impairment assessments of investments and long-lived assets;

• loss contingencies;

• environmental remediation obligations; and

• asset retirement obligations.

These estimates are discussed further throughout the accompanying notes.

     Proportional Accounting for the Conway Fractionator. No separate legal entity exists for the fractionator. We hold a 50 percent undivided interest in the fractionator property, plant and equipment, and we are responsible for our proportional share of the costs and expenses of the fractionator. As operator of the facility, we incur the liabilities of the fractionator (except for certain fuel costs purchased directly by one of the co-owners) and are reimbursed by the co-owners for their proportional share of the total costs and expenses. Each co-owner is responsible for the marketing of their proportional share of the fractionator’s capacity. Accordingly, we reflect our proportionate share of the fractionator property, plant and equipment in the Consolidated Balance Sheet. Liabilities in the Consolidated Balance Sheet include those incurred on behalf of the co-owners with corresponding receivables from the co-owners. Accounts receivable also includes receivables from our customers for fractionation services.

     Cash and Cash Equivalents. Cash and cash equivalents include demand and time deposits, certificates of deposit and other marketable securities with maturities of three months or less when acquired.

     Accounts Receivable. Accounts receivable are carried on a gross basis, with no discounting, less an allowance for doubtful accounts. No allowance for doubtful accounts is recognized at the time the revenue which generates the accounts receivable is recognized. We estimate the allowance for doubtful accounts based on existing economic conditions, the financial condition of our customers, and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been unsuccessful.

4

     Investments. We account for our investments in Discovery and Four Corners under the equity method since we do not control either. In 2004, we recognized an other-than-temporary impairment of our investment in Discovery. As a result, Discovery’s underlying equity exceeds the carrying value of our investment at December 31, 2005.

     Property, Plant and Equipment. Property, plant and equipment is recorded at cost. We base the carrying value of these assets on capitalized costs, useful lives and salvage values. Depreciation of property, plant and equipment is provided on the straight-line basis over estimated useful lives. Expenditures for maintenance and repairs are expensed as incurred. Expenditures that enhance the functionality or extend the useful lives of the assets are capitalized. The cost of property, plant and equipment sold or retired and the related accumulated depreciation is removed from the accounts in the period of sale or disposition.

     We record an asset and a liability equal to the present value of each expected future asset retirement obligation (“ARO”). The ARO asset is depreciated in a manner consistent with the depreciation of the underlying physical asset. We measure changes in the liability due to passage of time by applying an interest method of allocation. This amount is recognized as an increase in the carrying amount of the liability and as a corresponding accretion expense included in operating income.

     Revenue Recognition. The nature of our businesses result in various forms of revenue recognition. Our Gathering and Processing segment recognizes revenue from gathering services when the services have been performed. Our NGL Services segment recognizes (1) fractionation revenues when services have been performed and product has been delivered, (2) storage revenues under prepaid contracted storage capacity evenly over the life of the contract as services are provided and (3) product sales revenue when the product has been delivered.

     Gas purchase contract. In connection with the Partnership’s IPO, Williams transferred to us a gas purchase contract for the purchase of a portion of our fuel requirements at the Conway fractionator at a market price not to exceed a specified level. The gas purchase contract is for the purchase of 80,000 MMBtu per month and terminates on December 31, 2007. The initial value of this contract is being amortized to expense over the contract life.

     Product Imbalances. In the course of providing fractionation and storage services to our customers, we realize product gains and losses that are reflected as product imbalance receivables or payables on the Consolidated Balance Sheet. These imbalances are valued based on the market price of the products when the imbalance is identified and are evaluated for the impact of a change in market prices at the balance sheet date. Certain of these product gains and losses arise due to the product blending process at the fractionator. Others are realized when storage caverns are emptied. Storage caverns are emptied periodically to determine whether any product gains or losses have occurred, and as these caverns are emptied, it is possible that the resulting product gains or losses could have a material impact to the results of operations for the period during which the cavern drain is performed.

     Impairment of Long-Lived Assets and Investments. We evaluate our long-lived assets of identifiable business activities for impairment when events or changes in circumstances indicate the carrying value of such assets may not be recoverable. The impairment evaluation of tangible long-lived assets is measured pursuant to the guidelines of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” When an indicator of impairment has occurred, we compare our management’s estimate of undiscounted future cash flows attributable to the assets to the carrying value of the assets to determine whether the carrying value of the assets is recoverable. We apply a probability weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes. If the carrying value is not recoverable, we determine the amount of the impairment recognized in the financial statements by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value.

     We evaluate our investments for impairment when events or changes in circumstances indicate, in our management’s judgment, that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, we compare our estimate of fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and we consider the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment.

5

     Judgments and assumptions are inherent in our management’s estimate of undiscounted future cash flows used to determine recoverability of an asset and the estimate of an asset’s fair value used to calculate the amount of impairment to recognize. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the financial statements.

     Income Taxes. We are not a taxable entity for federal and state income tax purposes. The tax on our net income is borne by our owner, The Williams Companies, Inc.

     Environmental. Environmental expenditures that relate to current or future revenues are expensed or capitalized based upon the nature of the expenditures. Expenditures that relate to an existing contamination caused by past operations that do not contribute to current or future revenue generation are expensed. Accruals related to environmental matters are generally determined based on site-specific plans for remediation, taking into account our prior remediation experience. Environmental contingencies are recorded independently of any potential claim for recovery.

     Capitalized Interest. We capitalize interest on major projects during construction to the extent we incur interest expense. Historically, Williams provided the financing for capital expenditures; hence, the rates used to calculate the interest were based on Williams’ average interest rate on debt during the applicable period in time.

     Owners’ Equity. Because we are part of a controlled group that includes other wholly owned subsidiaries of Williams, the ownership interests that the other entities in this controlled group have in the Partnership are classified as Owners’ equity on the Consolidated Balance Sheet.

     Recent Accounting Standards. In December 2004, the Financial Accounting Standards Board (“FASB”) issued revised SFAS No. 123, “Share-Based Payment,” which was adopted by Williams in January 2006. The Statement requires that compensation costs for all share-based awards to employees be recognized in the financial statements at fair value. Accordingly, payroll costs reflect additional compensation costs related to the adoption of this accounting standard. These costs relate to Williams’ common stock equity awards made between Williams and its employees. The adoption of this Statement beginning in the first quarter of 2006 had no material impact on our financial position.

     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,” which will be applied prospectively for inventory costs incurred in fiscal years beginning after June 15, 2005. The Statement amends Accounting Research Bulletin (ARB) No. 43, Chapter 4, “Inventory Pricing,” to clarify that abnormal amounts of certain costs should be recognized as current period charges and that the allocation of overhead costs should be based on the normal capacity of the production facility. The impact of this Statement on our Consolidated Balance Sheet will not be material.

     In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,” which is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, and will be applied prospectively. The Statement amends APB Opinion No. 29, “Accounting for Nonmonetary Transactions.” The guidance in APB Opinion No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged but includes certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3,” which is effective prospectively for reporting a change in accounting principle for fiscal years beginning after December 15, 2005. The Statement changes the reporting of a change in accounting principle to require retrospective application to prior periods’ financial statements, except for explicit transition provisions provided for in any existing accounting pronouncements, including those in the transition phase when SFAS No. 154 becomes effective.

6

Note 4. Related Party Transactions

     The employees of our operated assets and all of our general and administrative employees are employees of Williams. Williams directly charges us for the payroll costs associated with the operations employees and certain general and administrative employees. Williams carries the obligations for most employee-related benefits in its financial statements, including the liabilities related to the employee retirement and medical plans and paid time off. Certain of these costs are charged back to the other Conway fractionator co-owners.

     Williams charges its affiliates, including us and its Midstream segment, of which we are a part, for certain corporate administrative expenses that are directly identifiable or allocable to the affiliates. Direct costs charged from Williams represent the direct costs of services provided by Williams on our behalf. Prior to the IPO, a portion of the charges allocated to the Midstream segment were then reallocated to us. These allocated corporate administrative expenses are based on a three-factor formula, which considered revenues; property, plant and equipment; and payroll. Certain of these costs are charged back to the other Conway fractionator co-owners. In management’s estimation, the allocation methodologies used are reasonable and result in a reasonable allocation to us of our costs of doing business incurred by Williams.

     We purchase fuel for the Conway fractionator, including fuel on behalf of the co-owners, from Williams Power Company (“Power”), a wholly owned subsidiary of Williams. These purchases are made at market rates at the time of purchase. In connection with the IPO, Williams transferred to us a gas purchase contract for the purchase of a portion of our fuel requirements at the Conway fractionator at a market price not to exceed a specified level. The initial value of this contract is being amortized to expense over the contract life. The carrying value of this contract is reflected as Gas purchase contract — affiliate and Gas purchase contract — noncurrent — affiliate on the Consolidated Balance Sheet.

     We sell surplus propane and other NGLs to Power, which takes title to the product and resells it, for its own account, to end users. Correspondingly, we purchase ethane and other NGLs from Power to replenish deficit product positions. The transactions conducted between us and Power are transacted at current market prices for the products.

     The per-unit gathering fee associated with two of our Carbonate Trend gathering contracts was negotiated on a bundled basis that includes transportation along a segment of a pipeline system owned by Transcontinental Gas Pipe Line Company (“Transco”), a wholly owned subsidiary of Williams. The fees we realize are dependent upon whether our customer elects to utilize this Transco capacity. When they make this election, our gathering fee is determined by subtracting the Transco tariff from the total negotiated fee. The rate associated with the capacity agreement is based on a Federal Energy Regulatory Commission tariff that is subject to change. Accordingly, if the Transco rate increases, our net gathering fees for these two contracts may be reduced. The customers with these bundled contracts must make an annual election to receive this capacity. For 2005 and 2006, only one of our customers has elected to utilize this capacity.

     We participate in Williams’ cash management program. As of June 30, 2006 and December 31, 2005, our net Advances from affiliate consisted of unsecured promissory note agreements with Williams for both advances to and from Williams and its subsidiaries. The advances are due on demand; however, repayment between Williams and its subsidiaries has not historically been required. Therefore, Advances from affiliate at June 30, 2006 and December 31, 2005 were classified as noncurrent. Interest on these advances is calculated using Williams’ weighted average cost of debt applied to the outstanding balance of the advances. The interest rate on the Advances from affiliate was 7.81 percent at June 30, 2006 and 7.7 percent at December 31, 2005.

Note 5. Equity Investments

     We use the equity method to account for our 25.1 percent ownership interest in Four Corners and our 40 percent ownership interest in Discovery. Williams owns an additional 20 percent ownership interest in Discovery and the remaining 74.9 percent ownership interest in Four Corners.

7

     Williams Four Corners

      Prior to June 20, 2006, Four Corners made distributions to Williams associated with Four Corners’ operations prior to our acquisition of a 25.1 percent ownership interest. These distributions resulted in a revised basis used for the calculation of the 25.1 percent interest transferred to us; therefore, the carrying value of our 25.1 percent interest in Four Corners and partners’ capital decreased $11.8 million during the period from January 1, 2006 to June 20, 2006 and $32.2 million in 2005.

     Four Corners reimburses Williams for actual payroll and employee benefit costs incurred on its behalf. In addition, Four Corners is charged for certain administrative expenses by Williams. These charges are either directly identifiable or allocated to Four Corners. Direct charges are for goods and services provided by Williams at our request. Allocated charges are allocated based on a three-factor formula, which considers revenues, property, plant and equipment and payroll. In management’s estimation, the allocation methodologies used are reasonable and result in a reasonable allocation to Four Corners.

     The operation of the Four Corners gathering system includes the routine movement of gas across gathering systems. This activity is referred to as “crosshauling.” Crosshauling typically involves the movement of some natural gas between gathering systems at established interconnect points to optimize flow. As a result, Four Corners must purchase gas for delivery to customers at certain plant outlets and has excess volumes to sell at other plant outlets. These purchases and sales transactions are conducted for Four Corners by Power, at current market prices. Historically, Power has not charged Four Corners a fee for providing this service, but has occasionally benefited from price differentials that historically existed from time to time between the plant outlets.

     Four Corners also purchases natural gas for fuel and shrink replacement from Power. These purchases are made at market rates at the time of purchase.

     Four Corners purchases natural gas from Power for steam conversion services at the Milagro cogeneration facility. The natural gas cost charged to Four Corners by Power has been favorably impacted by Power’s fixed price natural gas fuel contracts. These arrangements expire in the fourth quarter of 2006. Williams is evaluating the means by which Four Corners will obtain waste heat to generate steam beyond the life of this agreement and expect that Four Corner’s Milagro natural gas fuel costs will increase due to Williams’ expectation that future market prices will exceed prices associated with these agreements.

     Four Corners sells the NGLs to which they take title to Williams Midstream Marketing and Risk Management, LLC (“WMMRM”), a wholly owned indirect subsidiary of Williams.

     One of Four Corner’s major customers is Williams Production Company (“WPC”), a wholly owned subsidiary of Williams. WPC is one of the largest natural gas producers in the San Juan Basin and Four Corners provides natural gas gathering, treating and processing services to WPC under several contracts.

     Four Corners has a $20 million revolving credit facility with Williams as the lender. The facility is available to fund working capital borrowings and for other purposes.

     Discovery Producer Services

     Of the total Discovery ownership interest owned by Williams prior to the transfer of 40 percent to us, a portion was acquired by Williams in April 2005 resulting in a revised basis used for the calculation of the 40 percent interest transferred to us in connection with the Partnership’s IPO. As a result, the carrying value of our 40 percent interest in Discovery and Owners’ equity decreased $11.0 million during the second quarter of 2005.

     On August 22, 2005, Discovery made a distribution of approximately $43.8 million to Williams and the other member of Discovery at that date. This distribution was associated with Discovery’s operations prior to the Partnership’s IPO; hence, we did not receive any portion of this distribution. The distribution resulted in a revised basis used for the calculation of the 40 percent interest transferred to us in connection with the Partnership’s IPO. As a result, the carrying value of our 40 percent interest in Discovery and Owners’ equity decreased $17.5 million during the third quarter of 2005.

     In September 2005, we made a $24.4 million capital contribution to Discovery for a substantial portion of our share of the estimated future capital expenditures for the Tahiti pipeline lateral expansion project.

     Williams is the operator of Discovery. Discovery reimburses Williams for actual payroll and employee benefit costs incurred on its behalf. Additionally, Discovery purchases a portion of the natural gas from Williams to meet

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its fuel and shrink requirements at its processing plant.

     Discovery pays Williams a monthly operations and management fee to cover the cost of accounting services, computer systems and management services provided to it. Discovery also has an agreement with Williams pursuant to which Williams markets the NGLs and excess natural gas to which Discovery takes title.

     Summarized balance sheets for 100 percent of Four Corners and 100 percent of Discovery are presented below (in thousands):

Williams Four Corners LLC

	June 30,			December 31,
	2006			2005
	(Unaudited)
Current assets	$	35,757		$	18,832
Non-current assets		24,423			25,228
Property, plant and equipment		582,613			591,034
Current liabilities		(17,992	)		(27,978	)
Non-current liabilities		(1,118	)		(1,526	)
Members’ capital	$	623,683		$	605,590

Discovery Producer Services LLC

	June 30,			December 31,
	2006			2005
	(Unaudited)
Current assets	$	48,974		$	70,525
Non-current restricted cash and cash equivalents		32,509			44,559
Property, plant and equipment		354,300			344,743
Current liabilities		(20,870	)		(45,070	)
Non-current liabilities		(1,172	)		(1,121	)
Members’ capital	$	413,741		$	413,636

Note 6. Property, Plant and Equipment

     Property, plant and equipment, at cost, as of December 31, 2005 is as follows (in thousands):

			Estimated
			Depreciable
			Lives
Land and right of way	$	2,373
Fractionation plant and equipment		16,646		30 years
Storage plant and equipment		65,892		30 years
Pipeline plant and equipment		23,684		20-30 years
Construction work in progress		1,886
Other		1,492		5-45 years
Total property, plant and equipment		111,973
Accumulated depreciation		44,042
Net property, plant and equipment	$	67,931

     Effective December 31, 2005, we adopted FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations.” This Interpretation clarifies that an entity is required to recognize a liability for the fair value of a conditional ARO when incurred if the liability’s fair value can be reasonably estimated. The Interpretation clarifies when an entity would have sufficient information to reasonably estimate the fair value of an ARO. As required by the new standard, we reassessed the estimated remaining life of all our assets with

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a conditional ARO. We recorded additional liabilities totaling $573,000 equal to the present value of expected future asset retirement obligations at December 31, 2005. The liabilities are slightly offset by a $16,000 increase in property, plant and equipment, net of accumulated depreciation, recorded as if the provisions of the Interpretation had been in effect at the date the obligation was incurred, and the net $557,000 reduced earnings in 2005. If the Interpretation had been in effect at the beginning of 2005, the impact to our Consolidated Balance Sheet would have been immaterial.

     The obligations relate to underground storage caverns and the associated brine ponds. At the end of the useful life of each respective asset, we are legally obligated to properly abandon the storage caverns, empty the brine ponds and restore the surface, and remove any related surface equipment.

     A rollforward of our asset retirement obligation for 2005 is presented below (in thousands).

Balance, January 1	$	760
Liabilities incurred during the period		91
Liabilities settled during the period		(204	)
Accretion expense		1
Estimate revisions		(460	)
FIN No. 47 revisions		574
Balance, December 31	$	762

Note 7. Accrued Liabilities

     Accrued liabilities as of December 31, 2005 are as follows (in thousands):

Environmental remediation — current portion	$	1,424
Employee costs — affiliate		387
Taxes other than income		375
Other		187
	$	2,373

Note 8. Credit Facilities, Long-Term Debt and Leasing Activities

Credit Facilities

     On May 20, 2005, Williams amended its $1.275 billion revolving credit facility (“Williams facility”), which is available for borrowings and letters of credit, to allow us to borrow up to $75 million under the Williams facility. In May 2006, Williams replaced its $1.275 billion secured credit facility with a $1.5 billion unsecured credit facility. The new facility, which also allows us to borrow up to $75 million, contains substantially similar terms and covenants as the prior facility, but contains additional restrictions on asset sales, certain subsidiary debt and sale-leaseback transactions. Borrowings under the Williams facility mature in May 2009. Our $75 million borrowing limit under the Williams facility is available for general partnership purposes, including acquisitions, but only to the extent that sufficient amounts remain unborrowed by Williams and its other subsidiaries. Letters of credit totaling $378 million at December 31, 2005 and $107 million at June 30, 2006 had been issued on behalf of Williams by the participating institutions under the Williams facility and no revolving credit loans were outstanding.

     Interest on any borrowings under the Williams facility is calculated based on our choice of two methods: (i) a fluctuating rate equal to the facilitating bank’s base rate plus an applicable margin or (ii) a periodic fixed rate equal to LIBOR plus an applicable margin. We are also required to pay or reimburse Williams for a commitment fee based on the unused portion of our $75 million borrowing limit under the Williams facility, 0.325 percent at December 31, 2005 and 0.25 percent at June 30, 2006. The applicable margin, 1.75 percent at December 31, 2005 and 1.25 percent at June 30, 2006, and the commitment fee are based on Williams’ senior unsecured long-term debt rating. Under the Williams facility, Williams and certain of its

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subsidiaries, other than us, are required to comply with certain financial and other covenants. Significant financial covenants under the Williams facility to which Williams is subject include the following:

• ratio of debt to net worth no greater than (i) 70 percent through December 31, 2005, and (ii) 65 percent for the remaining term of the agreement;

• ratio of debt to net worth no greater than 55 percent for Northwest Pipeline Corporation, a wholly owned subsidiary of Williams, and Transco; and

• ratio of EBITDA to interest, on a rolling four quarter basis, no less than (i) 2.0 for any period after March 31, 2005 through December 31, 2005, and (ii) 2.5 for any period after December 31, 2005 through December 31, 2007 and (iii) 3.0 for the remaining term of the agreement.

     In August 2005, we entered into a $20 million revolving credit facility (the “credit facility”) with Williams as the lender. The credit facility was amended and restated on August 7, 2006. The credit facility is available exclusively to fund working capital requirements. Borrowings under the credit facility mature on June 20, 2009 and bear interest at the one-month LIBOR. We pay a commitment fee to Williams on the unused portion of the credit facility of 0.30 percent annually. We are required to reduce all borrowings under the credit facility to zero for a period of at least 15 consecutive days once each 12-month period prior to the maturity date of the credit facility. As of August 7, 2006, the Partnership has had no borrowings under the working capital credit faciltiy.

Long-Term Debt

     On June 20, 2006, the Partnership issued $150.0 million aggregate principal of 7.5 percent senior unsecured notes in a private debt placement. The maturity date of the notes is June 15, 2011. Interest is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2006. Debt issuance costs associated with the notes totaled $3.2 million and are being amortized over the life of the notes.

     In connection with the issuance of the senior unsecured notes, the Partnership entered into a registration rights agreement with the initial purchasers of the senior unsecured notes whereby they agreed to conduct a registered exchange offer of exchange notes in exchange for the senior unsecured notes or cause to become effective a shelf registration statement providing for resale of the senior unsecured notes. If the Partnership fails to comply with certain obligations under the registration rights agreement, they will be required to pay liquidated damages in the form of additional cash interest to the holders of the senior unsecured notes. Upon the occurrence of such a failure to comply, the interest rate on the senior unsecured notes shall be increased by 0.25 percent per annum during the 90-day period immediately following the occurrence of such failure to comply and shall increase by 0.25 percent per annum 90 days thereafter until all defaults have been cured, but in no event shall such aggregate additional interest exceed 0.50 percent per annum.

     The terms of the senior notes are governed by an indenture that contains affirmative and negative covenants that, among other things, limit (1) our ability and the ability of our subsidiaries to incur liens securing indebtedness, (2) mergers, consolidations and transfers of all or substantially all of our properties or assets, (3) Williams Partners Finance’s ability to incur additional indebtedness and (4) Williams Partners Finance’s ability to engage in any business not related to obtaining money or arranging financing for us or our other subsidiaries. We use the equity method of accounting for our investments in Discovery and Four Corners, and neither will be classified as our subsidiary under the indenture so long as we continue to own a minority interest in such entity. As a result, neither Discovery nor Four Corners will be subject to the restrictive covenants in the indenture. The indenture also contains

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customary events of default, upon which the trustee or the holders of the senior notes may declare all outstanding senior notes to be due and payable immediately.

     The senior notes are senior unsecured obligations and rank equally in right of payment with all of the Partnership’s other senior indebtedness and senior to all of the Partnership’s future indebtedness that is expressly subordinated in right of payment to the senior notes. The senior notes will not initially be guaranteed by any of our subsidiaries. In the future in certain instances as set forth in the indenture, one or more of our subsidiaries may be required to guarantee the senior notes.

     The Partnership may redeem the senior notes at its option in whole or in part at any time or from time to time prior to June 15, 2011, at a redemption price per note equal to the sum of (1) the then outstanding principal amount thereof, plus (2) accrued and unpaid interest, if any, to the redemption date, plus (3) a specified “make-whole” premium (as defined in the indenture). Additionally, upon a change of control (as defined in the indenture), each holder of the senior notes will have the right to require the Partnership to repurchase all or any part of such holder’s senior notes at a price equal to 101 percent of the principal amount of the senior notes plus accrued and unpaid interest. Except upon a change of control as described in the prior sentence, the Partnership is not required to make mandatory redemption or sinking fund payments with respect to the senior notes or to repurchase the senior notes at the option of the holders.

Leasing Activities

     We lease automobiles for use in our NGL Services segment. We account for these leases as operating leases. Future minimum annual rentals under non-cancelable operating leases as of December 31, 2005 are as follows (in thousands):

2006	$	30
2007		29
2008		27
2009		10
2010		—
	$	96

Note 9. Long-Term Incentive Plan

     In November 2005, we adopted the Williams Partners GP LLC Long-Term Incentive Plan (the “Plan”) for employees, consultants, and directors who perform services for us. The Plan permits the grant of awards covering an aggregate of 700,000 common units. These awards may be in the form of options, restricted units, phantom units or unit appreciation rights. Our Board of Directors Compensation Committee administers the Plan.

     During November and December 2005, we granted 6,146 restricted units pursuant to the Plan to members of our Board of Directors who are not officers or employees. These restricted units vest six months from grant date.

Note 10. Major Customers, Concentration of Credit Risk and Financial Instruments

Major Customers

     In 2005, four customers, Williams Power Company (an affiliate company), SemStream, L.P., Enterprise and BP Products North America, Inc. (BP) accounted for approximately 25.9 percent, 17.1 percent, 14.1 percent and

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13.5 percent, respectively, of our total revenues. SemStream, L.P., BP, Enterprise and Williams Power Company are customers of the NGL Services segment. Chevron is a customer of the Gathering and Processing segment.

     Four Corners’ largest customer, on a percentage of revenues basis, is WMMRM, which purchases and resells substantially all of the NGLs to which Four Corners takes title. WMMRM accounted for 48 percent of revenues in 2005. The remaining two largest customers accounted for 15 percent and 11 percent of revenues in 2005.

     Discovery’s largest customer, Williams, accounted for approximately $70.8 million (58 percent) of Discovery’s total revenues in 2005.

     Our Carbonate Trend gathering pipeline has only two customers. The loss of either of these customers, unless replaced, would have a significant impact on the Gathering and Processing segment.

Concentration of Credit Risk

     Our cash equivalents consist of high-quality securities placed with various major financial institutions with credit ratings at or above AA by Standard & Poor’s or Aa by Moody’s Investor’s Service.

     The following table summarizes the concentration of accounts receivable by service and segment as of December 31, 2005 (in thousands).

Gathering and Processing:
Natural gas gathering	$	525
NGL Services:
Fractionation services		532
Amounts due from fractionator partners		1,834
Storage		793
Other		260
	$	3,944

     Our fractionation and storage customers include crude refiners; propane wholesalers and retailers; gas producers; natural gas plant, fractionator and storage operators; and NGL traders and pipeline operators. Our two Carbonate Trend natural gas gathering customers are oil and gas producers. While sales to our customers are unsecured, we routinely evaluate their financial condition and creditworthiness.

Financial Instruments

     The carrying amount of cash and cash equivalents reported in the balance sheet approximates fair value due to the short-term maturity of these instruments.

     The following table summarizes our financial instruments as of December 31, 2005 (in thousands).

	Carrying		Fair
	Amount		Value
Cash and cash equivalents	$	6,839	$	6,839

Note 11. Commitments and Contingencies

     Environmental Matters. We are a participant in certain environmental remediation activities associated with soil and groundwater contamination at our Conway storage facilities. These activities relate to four projects that are in various remediation stages including assessment studies, cleanups and/or remedial operations and monitoring. We continue to coordinate with the Kansas Department of Health and Environment (“KDHE”) to develop screening, sampling, cleanup and monitoring programs. The costs of such activities will depend upon the program scope ultimately agreed to by the KDHE and are expected to be paid over the next two to nine years.

     We have an insurance policy that covers up to $5.0 million of remediation costs until an active remediation system is in place or April 30, 2008, whichever is earlier, excluding operation and maintenance costs and ongoing monitoring costs, for these projects to the extent such costs exceed a $4.2 million deductible. The policy also covers costs incurred as a result of third party claims associated with then existing but unknown contamination related to the storage facilities. The aggregate limit under the policy for all claims is $25 million. In addition, under an

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omnibus agreement with Williams entered into at the closing of the IPO, Williams agreed to indemnify us for the $4.2 million deductible (less amounts expended prior to the closing of the IPO) of remediation expenditures not covered by the insurance policy, excluding costs of project management and soil and groundwater monitoring. There is a $14 million cap on the total amount of indemnity coverage under the omnibus agreement, which will be reduced by actual recoveries under the environmental insurance policy. There is also a three-year time limitation from the IPO closing date, August 23, 2005. The benefit of this indemnification will be accounted for as a capital contribution to us by Williams as the costs are reimbursed. We estimate that the approximate cost of this project management and soil and groundwater monitoring associated with the four remediation projects at the Conway storage facilities and for which we will not be indemnified will be approximately $200,000 to $400,000 per year following the completion of the remediation work.

     At June 30, 2006 and December 31, 2005, we had accrued liabilities totaling $5.5 million and $5.4 million, respectively, for these costs. It is reasonably possible that we will incur losses in excess of our accrual for these matters. However, a reasonable estimate of such amounts cannot be determined at this time because actual costs incurred will depend on the actual number of contaminated sites identified, the amount and extent of contamination discovered, the final cleanup standards mandated by KDHE and other governmental authorities and other factors.

     Other. We are not currently a party to any legal proceedings but are a party to various administrative and regulatory proceedings that have arisen in the ordinary course of our business. Management, including internal counsel, currently believes that the ultimate resolution of the foregoing matters, taken as a whole, and after consideration of amounts accrued, insurance coverage or other indemnification arrangements, will not have a material adverse effect upon our future financial position.

Note 12. Segment Disclosures

     Our reportable segments are strategic business units that offer different products and services. The Gathering and Processing segment includes our ownership interest in Four Corners, our ownership interest in Discovery and the Carbonate Trend gathering pipeline. The NGL Services segment includes three integrated NGL storage facilities and a 50 percent undivided interest in a fractionator near Conway, Kansas. The segments are managed separately because each segment requires different industry knowledge, technology and marketing strategies. The accounting policies of the segments are the same as those described in Note 3, Summary of Significant Accounting Policies. Long-lived assets are comprised of property, plant and equipment.

	Gathering &		NGL
	Processing		Services		Total
			(In thousands)
June 30, 2006:
Segment assets	$	335,632	$	67,211	$	402,843
Other assets and eliminations						16,699
Total assets					$	419,542
Equity method investments	$	304,932	$	—	$	304,932
Additions to long-lived assets		—		2,259		2,259
December 31, 2005:
Segment assets	$	323,012	$	64,579	$	387,591
Other assets and eliminations						5,353
Total assets					$	392,944
Equity method investments	$	302,263	$	—	$	302,263
Additions to long-lived assets		—		3,688		3,688

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EX-99.2

exv99w2