Enogex-Transok Pairing Viewed Cautiously
Oklahoma producers are eyeing the pending purchase of Shell subsidiary
Transok by OGE Energy subsidiary Enogex with cautiously optimistic eyes.
While the sale would double Enogex's pipeline holdings, it's not clear
to Oklahoma market participants what effect the deal will have on competition.
"We're kind of taking a wait and see attitude," said one trader
active in the Midcontinent. Will there be objections? "Aw heck, you
know somebody's going to [object to the deal] just because they want to.
Most of the gathering between the two companies has been pretty competitive
in the past. I can't see that there's going to be any large objections
from anyone where it would maybe jeopardize the deal."
For the record, competitor Oneok has no plans to contest the deal. "We're
not gearing up to do anything in this, but certainly it would be something
that would be of great interest," said Oneok spokesman Weldon Watson.
"There are no plans on our part to obstruct or try to keep this from
Taking a somewhat more proactive approach is the natural gas committee
of the Oklahoma Independent Petroleum Association (OIPA). Last Friday committee
Chairman Mike Cross, president of Oklahoma City-based Twister Gas Services
LLC, hosted a meeting of about 10, including Enogex representatives, to
discuss the potential threat to competition the deal may cause. An initial
eyeballing of system maps showed little reason for concern, Cross said,
noting there are few areas where Transok and Enogex are the sole competitors.
"Until we spend this weekend and the next few days looking into
this, I can't even tell you of a problem that I know exists right this
One area where the producers at least were concerned is with the funding
of the purchase. "We wanted to make sure the way to pay for it wasn't
going to be to raise rates for producers," Cross said. After listening
to Enogex representatives at the Friday meeting, Cross said the producers
don't expect any rate increase at the present time on either the Enogex
or Transok systems.
Mickey Thompson, OIPA executive vice president said, "I don't have
any problem saying historically Enogex, relatively speaking, has been pretty
fair as a gas gatherer in Oklahoma. That is, I believe, in their favor.
I think it would be remiss on our part if we weren't worried about [the
deal]." Thompson noted his membership is hoping recently passed gas
gathering legislation will be substantial enough to provide producers an
avenue to redress grievances at the Oklahoma Corporation Commission.
A spokesman for the Oklahoma Midcontinent Oil & Gas Association
said the group hasn't examined the deal closely.
Enogex has 4,700 miles of pipeline with 1998 throughput of 685 MMcf/d.
The company had natural gas liquids (NGL) production of 10,000 barrels/d
and has 5 Bcf of storage. Transok has 4,900 miles of pipeline with 1998
throughput of 1.2 Bcf/d, NGL production of 25,000 barrels/d, and 18 Bcf
of storage. Benefits of the Transok acquisition, according to Enogex, include
increased earnings and cash flow, increased transportation capabilities,
and additional marketing flexibility due to increased storage. Enogex says
the deal will give producers more options, gas customers more supply options,
and create a strong competitor in the deregulated gas market. Enogex plans
to fold Transok administrative and field operations into its Oklahoma City,
OK, headquarters. However, a presence will be maintained in Tulsa.
Another Midcontinent trader said there are several obvious reasons Enogex
wants Transok. "The first is to increase their market share, which
[the deal] does. In the natural course of increasing their market share
they are also decreasing competition. The other reason is to capture some
of the [East-West Oklahoma pricing] spreads out there. Historically, there
is about an 8- to 10-cent spread between the West and the East, which makes
it profitable to transport gas from the West to the East."
Enogex will be able to "re-optimize" the Transok system as
the two serve slightly different markets, the trader noted.
When Enogex bought Ozark Pipeline from NGC (now Dynegy) and a majority
interest in the NOARK Pipeline from Prudential Insurance and a SEMCO Energy
subsidiary in January 1998 (see NGI Jan. 19,
1998) it collected the components of a new interstate pipeline to traverse
Oklahoma and Arkansas. Enogex then filed with the Federal Energy Regulatory
Commission (FERC) to combine the two systems. In November, the FERC authorized
an increase in the initial firm and interruptible rates for the expanded
Ozark Gas Transmission to reflect an adjustment in firm billing determinants
(see NGI Nov. 30, 1998).
Joe Fisher, Houston