Energy Transfer Co., a privately held Dallas-based company, is paying $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.” 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.

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