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El Paso Gains Partner for Ruby Pipeline

El Paso Corp. last week said private equity fund Global Infrastructure Partners (GIP) would become a joint venture (JV) partner for the Ruby Pipeline Project, adding more assurance the 675-mile, 42-inch pipeline to move natural gas supplies from Opal, WY, to Malin, OR, will be completed.

As proposed, the $3 billion Ruby Pipeline would have an initial design capacity of up to 1.5 Bcf/d. Assuming final Federal Energy Regulatory Commission (FERC) approval early next year, pipeline construction could begin by mid-year 2010 and be in service by March 2011, El Paso said.

Once completed, Ruby will be "one of the key assets in our pipeline franchise," said Jim Cleary, who helms El Paso's Western Pipelines unit.

Under terms of the JV announced last week, GIP would invest up to $700 million to acquire a half-stake in Ruby. Initially GIP would invest $405 million through a 7% secured note, which would reimburse El Paso for half of its costs to date and fund half of its future costs to develop the project. When construction financing is completed, the note would be exchanged for a convertible preferred equity interest in Ruby.

To secure GIP's investment until the project is completed, El Paso agreed to provide GIP a portion of its 55 million El Paso Pipeline Partners LP common units and a portion of its equity in the existing Cheyenne Plains Pipeline. To gain the interest in Cheyenne Plains, GIP agreed to invest $145 million, which would be exchanged for a convertible preferred equity interest in Ruby when the pipeline is completed.

Depending on the amount of external financing obtained for Ruby, GIP could invest up to $150 million more in the project.

GIP would have the option to convert its preferred equity in the pipeline to common equity at any time, but the preferred equity is subject to a mandatory conversion to common equity once certain conditions are satisfied, including additional shipper commitments on Ruby Pipeline, El Paso said.

El Paso would continue to be responsible for the construction of the Ruby Pipeline Project and its operations, which remain on schedule, the company said. Ruby is expected to be completed at or below budget, and should construction costs come in under budget, El Paso would retain all benefits. Conversely, El Paso would absorb any cost overruns.

In January El Paso filed an application with FERC to construct Ruby, and the draft environmental impact statement (DEIS) was issued by the Commission in June (see NGI, June 22). A public comment period on the DEIS will end Aug. 10, and a final EIS is expected to be issued by FERC in October (see NGI, July 13).

El Paso in June said it hired an undisclosed investment bank to act as a financial adviser for Ruby to recommend a package of financing options in addition to project financing with the objective of accessing the capital markets after final FERC approval has been received.

"Ruby is an attractive investment that will benefit from the combined financial, operational and energy industry expertise of this GIP/El Paso partnership," said GIP Managing Partner Adebayo Ogunlesi.

GIP, which invests in infrastructure projects worldwide, targets investments in single assets and portfolios of assets and companies in power and utilities, natural resources infrastructure, air transport infrastructure, ports, freight rail, waste management and water distribution and treatment.

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