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BP Buys All of Aux Sable's NGL Production

Aux Sable will sell all of the natural gas liquids from Chicago gas processing facility to BP under a binding memorandum of agreement between the major producer and Enbridge Inc., which owns 42.7% of Aux Sable. The Aux Sable plant is located at the delivery end of the Alliance Pipeline, which transports natural gas and liquids 1,900 miles from western Canada to the Midwest.

BP will buy the NGL and pay Aux Sable a fixed annual fee and a percentage share of any net margin generated that exceeds specified thresholds. It also will compensate Aux Sable for operating, maintenance and capital costs at the plant. In addition, BP will supply all make-up and fuel natural gas to the Aux Sable plant and will take capacity at market rates on the Alliance Pipeline that is held by Aux Sable affiliate Alliance Canada Marketing.

"It [the agreement] is consistent with Enbridge's overall risk profile in that it guarantees base profitability, as well as retaining upside from business in excess of the specified cash flow thresholds," said Stephen J. J. Letwin, Enbridge group vice president, gas strategy and corporate development. "It provides greater stability for Aux Sable's future earnings stream and allows Aux Sable to pursue other business in the NGL industry such as the development of new extraction facilities."

The evergreen agreement will be for 20 years initially, beginning Dec. 31, 2005; 10-year extensions are possible by mutual agreement. Under limited circumstances, BP will have the option to terminate if cumulative losses from the business exceed a specified amount. However, Aux Sable has the option of mitigating BP's losses in order to avoid contract termination. BP and Aux Sable will complete the agreement by March 31.

Enbridge, through affiliates, owns 42.7% of Aux Sable Liquid Products LP. Fort Chicago Energy Partners LP also owns 42.7%, and The Williams Companies owns 14.6%. Enbridge and Fort Chicago are joint owners of the Alliance Pipeline (see NGI, March 28, 2003).

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