El Paso Buying Oneok Processing Plant
El Paso Field Services continued its strategy of growing
short-term earnings in its midstream business while working to
secure long-term strategic gas supply for its affiliated pipeline,
El Paso Natural Gas.
The company last week agreed to buy Tulsa, OK-based Oneok Inc.'s
42.3% interest in the Indian Basin Gas Processing Plant and
gathering system for $55 million. The deal is expected to close by
the end of March. The Indian Basin Plant, operated by Marathon Oil,
is in Eddy County, NM, and has processing capacity of 240 MMcf/d,
producing more than 10,000 b/d of natural gas liquids. The plant is
running full now, according to El Paso. Oneok acquired its majority
interest in the plant when it acquired the gas properties of
Western Resources in 1998.
The facilities are adjacent to El Paso Field Services' 800-mile
Carlsbad gathering system and include a cryogenic processing plant
and amine treating facility, plant and field compression totaling
20,000 horsepower and more than 60 miles of gathering line. Current
throughput is about 225 MMcf/d.
"These assets provide an outstanding fit with our existing
Carlsbad gathering system, which has seen consistently strong
drilling and volume increases over the last several years," said
Robert G. Phillips, El Paso Field Services president. "We have been
looking for the right opportunity to strengthen our processing and
treating capabilities in this area and this plant, with its
percentage-of-proceeds-style contracts and proximity to our
existing assets, will significantly contribute to our growth in
The processing plant will enable El Paso Field Services to
gather the region's wet gas, something it cannot currently do.
"There's a lot of new production in the area that is becoming
increasingly rich, and we felt like we were missing an opportunity
to compete for new reserves being developed in the area," Phillips
said. "We have pretty significant reserve evaluations of the area.
It's a very competitive area. It's a great plant. It's fairly new.
We don't have to do anything other than tie our Carlsbad gathering
system into the new plant."
The plant acquisition also fits in to the longer-term strategy
of pipeline El Paso Natural Gas by enabling Field Services to
aggregate more supplies for the pipeline. The Indian Basin plant
traditionally has processed gas for Natural Gas Pipeline Co. of
America (NGPL), a pipe that serves the midwestern U.S. El Paso
Natural Gas serves the California market.
"Over the long-term, we would hope that because of the strength
of gas demand in California that that would increase prices on El
Paso Natural Gas and give us the opportunity to gather and deliver
more gas to El Paso Natural Gas." That would mean taking supply
away from NGPL.
Phillips said El Paso's view sees midwestern gas prices being
pushed downward by new Canadian supplies coming from the Northern
Border and Alliance pipelines. However, on the West Coast, new
gas-fired power generation will push demand and prices up. Phillips
said prices for gas on El Paso should improve over the next two to
three years, benefiting producers on El Paso's Carlsbad system.
El Paso Field Services embraced the same strategy when it agreed to acquire
Texas gathering and liquids businesses from PG&E National Energy Group
last month (see NGI Feb. 7). The strategy dates back to El Paso Energy's acquisition
of Leviathan Gas Pipeline in 1998 (see NGI March
9, 1998), Phillips said.
The deal is expected to close by the end of the first quarter