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El Paso Buying Oneok Processing Plant

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 2000."

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 2000.

Joe Fisher

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