Energy Transfer Co., a privately held Dallas-based company, has agreed to pay $265 million in cash for Aquila Inc.’s 50% ownership in the 600-mile Oasis natural gas pipeline system, as well as the company’s Southeast Texas and Mid-Continent pipeline systems, which include natural gas and gas liquids processing assets. In just a few months, Aquila has announced asset sales totaling $483 million.

The 600-mile Oasis pipeline system connects the Waha natural gas hub in the Permian Basin of West Texas with the Katy market hub near Houston. Physical throughput capacity of the pipeline is approximately 1 Bcf/d. The pipeline facilities and other assets in this sale, owned and operated by Aquila subsidiary Aquila Gas Pipeline Corp. (AQP), include three natural gas pipeline systems, two processing facilities and eight natural gas treating facilities, all in Southeast Texas.

The Mid-Continent assets, located primarily in western Oklahoma, include AQP’s Elk City natural gas and gas liquids processing plant and its associated gas gathering system. In addition to these assets, the sale also includes AQP’s ownership interests in two joint venture arrangements with assets located in South Texas and the Permian Basin area of West Texas.

The financing structure for the acquisition, which is subject to certain adjustments and regulatory review, involves a combination of equity, to be provided by an investor group led by Natural Gas Partners (NGP), and debt, which will be sourced from at least one financial institution. Approximately 175 employees are associated with the Aquila assets, and most are expected to transfer to Energy Transfer, Aquila said.

“All of the parties are committed to this deal.” said Mackie McCrea, executive vice president of Energy Transfer. The company already owns and operates natural gas gathering, processing, treating and compression assets in Texas and Louisiana. It also engages in extensive electric power activities, including small-power generation and patent-pending dual-drive compression technology, which uses large-scale natural gas/electricity arbitrage at the natural gas pipeline level. Dow Hydrocarbons Inc. owns the other 50% of Oasis.

Aquila CEO Robert K. Green said the Kansas City, MO-based company is on its way to achieving a goal of selling $1 billion in non-strategic assets, which he called a “major part of the restructuring we announced just over two months ago.” Last week, Aquila announced the $180 million sale of its Texas gas storage assets to ScottishPower’s PacifiCorp Power Marketing Inc., including the sale of its Katy storage facility near Houston, and two other gas storage development projects (see Daily GPI, Aug. 9). The latest deal is expected to be completed within 90 days.

Aquila will use the cash from the Energy Transfer transaction and the other asset sales to redeem and retire its existing debt, part of a plan to maintain its credit profile, which remains at investment grade. Credit Suisse First Boston acted as Aquila’s exclusive financial adviser in the AQP transaction.

On Tuesday (Aug. 21), Aquila executives are scheduled to meet with the top three credit ratings agencies in New York City to make presentations concerning the company’s ratings. Standard & Poor’s Ratings Service, Moody’s Investors Service and Fitch Ratings have kept Aquila at investment grade, but it has been on a credit watch and could be cut to “junk” status.

If Aquila’s credit rating was cut, the company has said it would be required to make $484 million in debt payments as well as post additional collateral. However, Aquila added that even a cut below investment grade could be managed in the short term. S&P rates Aquila two notches above junk status, while both Moody’s and Fitch rate Aquila one notch above.

In other news, Richard Green, chairman of Aquila, and his brother Robert, who is also president, have been sued by a cousin for their handling of the family trust’s assets, which consist entirely of Aquila stock. In a lawsuit filed last Thursday, cousin Jeffrey Green alleges that the two brothers, who manage the trust, failed to diversify the Avis Green Tucker Trust, and said its value has fallen from nearly $11 million to $695,000. The trust was established in 1953 by the men’s grandfather, Ralph J. Green, who ran Aquila’s predecessor, Missouri Public Service Co.

Jeffrey Green alleges that Richard Green and Robert Green, as officers and directors of Aquila, knew or should have known of the losses at Aquila, their likely effect on Aquila’s stock price and that the corresponding loss that would be suffered by the Avis Green Tucker Trust.

According to the lawsuit, the trust was originally funded with 4,545 shares of stock in Missouri Public Service and now holds 289,000 shares of Aquila stock. The company had about 138.5 million publicly traded shares earlier this year. The lawsuit seeks unspecified damages.

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