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Oneok Buys Kinder Morgan Midcontinent Assets

Oneok Buys Kinder Morgan Midcontinent Assets

Oneok Inc. closed on the acquisition of a wide range of Midcontinent gas assets from Kinder Morgan Inc. (KMI) last Wednesday after FERC ruled that the operations included in the sale were exempt from the terms of a recent consent agreement, which imposed a number of restrictions on KMI companies for affiliate violations [IN00-1]. This transaction, together with Oneok's purchase of midstream assets from Dynegy Inc. last month, makes the company one of the biggest players in the Midcontinent gas market.

As part of the transaction, Oneok purchased Westar Transmission, Caprock Pipeline and American Gas Storage L.P., as well as all of KMI's marketing and trading business (including KN Marketing) and all of its gas gathering and processing facilities in West Texas, Oklahoma and Kansas.

Oneok reported it paid KMI $108 million for the assets, plus adjustments in working capital to cover natural gas and gas liquids' inventories. It said an additional $6 million will be paid for KMI's Buffalo Wallow interstate pipeline facilities upon FERC approval of the sale. The Buffalo Wallow line stretches from Oklahoma to the Texas Panhandle.

Also as part of the deal, the diversified energy company assumed the operating lease associated with the Bushton, KS, processing plant. In acquiring KMI's marketing business, it also became the holder of a significant amount of long-term firm capacity on Natural Gas Pipeline Co. of America (NGPL) and Kinder Morgan Interstate Gas Transmission (formerly KN Interstate Gas Transmission).

The holder of the capacity will be Oneok Gas Marketing, whose name will soon be changed to Oneok Energy Marketing and Trade. Lamar Miller, Oneok's vice president of risk control, declined to disclose the specific amounts that Oneok will control on the two Kinder Morgan pipelines. He said that while Oneok has contracted for capacity on the lines previously, this marks the first time it has held "long-term positions.....of any consequence."

About 350 employees, mostly in Kansas and West Texas, will be added to the Oneok workforce.

The deal covers more than 12,000 miles of pipeline, six gas processing plants with 1.26 Bcf/d of capacity and storage capacity of 10.5 Bcf. "We will focus on combining these assets with our existing assets and those added with the Dynegy transaction" in March, said Oneok President David Kyle. Last month, Oneok acquired Midcontinent gathering, processing and pipeline facilities from Houston-based Dynegy for $307.7 million.

Susan Parker

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