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Inergy to Acquire Stagecoach Gas Storage Facility for $205M

Looking to diversify from being purely a propane supply and distribution business, Kansas City, MO-based Inergy LP. said last week that it has entered into an agreement to purchase the Stagecoach natural gas storage facility located in Tioga County, NY, for $205 million.

Stagecoach is a multi-cycle storage facility with 13.6 Bcf of working gas capacity, maximum withdrawal capability of 500 MMcf/d, and maximum injection capability of 250 MMcf/d. The facility was developed by eCORP LLC, a leading developer of natural gas storage facilities in the United States, and was placed in commercial service during the second quarter of 2002 following approval from the Federal Energy Regulatory Commission (see NGI, July 8, 2002). Inergy LP. will buy the membership interests of the facility owners.

Located 150 miles northwest of New York City, Stagecoach is currently connected to Tennessee Gas Pipeline Co.'s 300 Line and is a significant participant in the northeast United States natural gas distribution system. Subject to closing conditions and regulatory approvals, Inergy said it anticipates closing the transaction sometime next month.

In addition to the $205 million purchase price for the operating Stagecoach facility, Inergy also purchased the rights to the Phase II expansion project of Stagecoach for $25 million. The Phase II expansion is expected to add 13 Bcf of additional working gas capacity. While the Phase II expansion is subject to additional governmental and regulatory approvals, as well as the successful conclusion of certain commercial matters, it is currently anticipated to be in service in mid-to-late 2007.

In connection with the financing of the Phase II expansion rights, Inergy Holdings LP. is expected to purchase 800,000 special units from Inergy that, while not entitled to a current cash distribution, are convertible to Inergy common units upon the Phase II expansion becoming commercially operational.

Inergy CEO John Sherman said the facility is "100% fee-based, backed by term agreements with investment grade counterparties, and is a core piece of the natural gas storage and transmission infrastructure in the northeast United States." Sherman added that he expects the investment to be immediately accretive to both partnerships.

In connection with closing this transaction, Inergy's Stagecoach subsidiaries will enter into new business relationships with NJR Energy Services Co. (NJRES), a subsidiary of New Jersey Resources. Under the terms of these agreements, NJRES will subscribe for 4.2 Bcf of firm storage and related transportation services that will allow it to continue to participate in the Stagecoach natural gas storage facility.

"Execution of the NJRES agreements is strong validation of the market's increasing demand for high deliverability storage in the Northeast," said David Dehaemers, executive vice president of corporate development for Inergy.

Inergy expects earnings before interest, taxes, depreciation and amortization from its new operations to be $20 million in fiscal year 2006, increasing to $40-45 million in fiscal year 2008, which is expected to be the first full year of commercial operations for the Phase II expansion. Upon completion of the Phase II expansion, Inergy expects total invested capital in Stagecoach to be $350 million.

The company said it intends to fund the $205 million acquisition initially with borrowings from its revolving credit facility; and Inergy Holdings LP. intends to finance its $25 million contribution through bank borrowings. Inergy LP. expects to finance the acquisition with longer-term capital through a combination of equity and debt issuances in the near term consistent with its balanced acquisition funding approach.

Inergy serves over 600,000 consumers from 280 customer service centers in 27 states. The company also provides wholesale supply and distribution services to independent propane operators in the United States and Canada.

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