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Black Hills to Sell Oil Marketing Assets; Concentrate on Natural Gas

As its tries to buy the utility assets of NorthWestern Energy in a continuing saga, Rapid City, SD-based Black Hills Corp. announced late Monday it plans to sell its oil marketing operations to a subsidiary of Sunoco Logistics Partners LP. The purchase price is confidential and the transaction is expected to close in 120 days, the company said in a written announcement, noting that the cash proceeds will be used to reduce debt.

The oil marketing assets are essentially embodied in Black Hills Energy Resources Inc., a Houston-based company that sells crude oil and pipeline transportation. The assets include the 200-mile Millennium and 190-mile Kilgore Pipelines and other ancillary assets and businesses.

Black Hills has been aggressively seeking to acquire NorthWestern, its neighboring South Dakota-based utility holding company that has most of the power and natural distribution utility assets in Montana, South Dakota and Nebraska.

"Over the past several years, our primary energy marketing activity and competitive advantage increasingly focused on the natural gas sector," said Black Hills CEO David Emery. "After careful evaluation of our strengths and strategy, we concluded that divesting of our oil marketing [and] transportation assets made sense and was in the best interest of our shareholders."

In its third quarter 2005 earnings report, Black Hills reported an overall loss of $23 million, or 73 cents/share, for the quarter ended Sept. 30, and as part of those results it said energy marketing and transportation recorded a loss of $1.1 million, primarily due to what it described as "lower oil transportation revenues and a $2.5 million pre-tax litigation settlement accrual." Lower oil transportation revenues were the result of suspended shipments during routine pipeline pressure testing and a power outage stemming from the effects of Hurricane Rita.

On the positive side for the quarter, Black Hills reported that its "physical natural gas average daily marketing volumes increased 33% to 1.6 million MMBtu."

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