With purchases last week of the Ozark Pipeline from NGC for $55 million and a majority interest in the NOARK Pipeline system from Prudential Insurance and a SEMCO Energy subsidiary for $30 million, Enogex Inc. collected the components of a new interstate natural gas pipeline system that will traverse Oklahoma and Arkansas. Enogex, a subsidiary of Oklahoma City-based OGE Energy, operates a 3,400-mile intrastate pipeline system in Oklahoma, which will provide some of the upstream supply access for the new system.

Through a partnership with NOARK owner Southwestern Energy, Enogex plans to expand NOARK and integrate it with Ozark into a single, interstate transmission system at an estimated cost of $15 million. The rationale behind the integration, according to Roger Farrell, executive vice president of Enogex, is to create access to local markets for the production available to Ozark and Enogex, while providing NOARK’s existing markets and some new industrial end-users in northern Arkansas with access to much needed supplies.

“The integration with Ozark will completely change NOARK’s operating environment,” said Southwestern CEO Charles E. Scharlau. “NOARK has always accessed good markets, but its performance has been hindered by a lack of adequate gas supply. With this agreement, we have the opportunity to significantly increase the value of our NOARK investment.

NGC Corp. owned the Ozark line for the past two years and, according to CEO Chuck Watson, improved the operating efficiencies and increased throughput of the line. “…[W]e have enhanced its value. Because we no longer consider this asset strategic to our business in this area, we have elected to sell it at an attractive value and to redeploy the proceeds into other core business opportunities which provide greater future return on investment,” said Watson. NGC purchased the line in 1995 for $44.8 million from Columbia Gulf Transmission, Tennessee Gas Pipeline, USX Corp. and ONEOK Inc.

Connecting Ozark to NOARK’s markets, including two LDCs in Arkansas, Arkansas Western Gas and Associated Natural Gas, is expected to raise throughput even more. The NOARK line currently is a 302-mile intrastate pipeline system that extends from near Fort Chaffee, AR, to near Paragould, AR. Throughput capacity on NOARK is 130 MMcf/d. The 437-mile Ozark line is an interstate line that begins near McAlester, OK, and terminates near Searcy, AR. Throughput capacity is 170 MMcf/d.

“These acquisitions are an excellent fit with Enogex’s long-term growth strategy,” said Farrell. “They provide a tremendous opportunity to expand the scope of our pipeline operations and access attractive, growing natural gas markets in Arkansas, the Midwest and the Northeast.” The line also will create a new transportation path for shippers in markets as far away as the Midwest and Northeast, via connections with Mississippi River Transmission, Texas Eastern Transmission, and Natural Gas Pipeline in Arkansas.

Their interest in the new system also will serve as a vehicle for both Southwestern and Enogex to grow their non-regulated energy marketing and services businesses, the companies said. It is expected to begin operation as an integrated system in late 1998. After the integration, which will be funded by Enogex Arkansas Pipeline (EPAC), EAPC will own 75% interest in the partnership and Southwestern Energy will own a 25% interest.

Rocco Canonica

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