ONEOK Inc. announced last Tuesday that it will begin a process that may result in the sale of its oil and gas production companies, part of its strategy to finance the $1.5 billion purchase, completed last week, of extensive natural gas liquids businesses from several Koch companies.
"When we completed our acquisition of the natural gas liquids businesses from Koch, we indicated our intention to finance the transaction through a combination of available cash, issuance of long-term debt, settlement of our equity units in February 2006, and from the proceeds of the sale of less strategic assets," said ONEOK CEO David Kyle. "Selling our oil and gas production operations is consistent with that strategy."
The company's production segment owns, develops and produces natural gas and oil reserves in four fields in Oklahoma and Texas. This segment focuses on the acquisition and development of reserves, rather than exploratory drilling.
The company plans to contact a limited number of prospective strategic buyers and will open a data room at its headquarters. If the company proceeds with the sale, it expects to complete the transaction sometime in the third quarter 2005. Proceeds will be used to reduce debt.
"This will allow us to focus our attention on our other businesses -- natural gas distribution, gathering and processing, transportation and storage, energy services, natural gas liquids and our investment in Northern Border Partners," Kyle added.
The businesses acquired from the Koch companies give ONEOK an extensive NGL system that connects much of the NGL supply located in Oklahoma, the Texas Panhandle and Kansas with the two key market centers in Conway, KS, and Mont Belvieu, TX.
Koch Hydrocarbon LP.'s entire Midcontinent NGL business that provides NGL gathering, fractionation, storage and marketing services for processors in Oklahoma, Kansas and Texas was included in the transaction. This includes two fractionators 100%-owned by Koch Hydrocarbon located at Medford, OK, and Hutchinson, KS, with combined capacity of 240,000 bbl/d, and a 10% ownership in another 110,000 bbl/d fractionator located at Conway. In addition, there are two underground NGL storage facilities and a 9,000 bbl/d isomerization facility that are also located at Conway.
Also included in the transaction were Koch Pipeline Co. LP.'s NGL pipeline distribution systems, which consists of approximately 1,800 miles of interstate NGL distribution pipelines that connect the Conway and Mont Belvieu market centers. There are also approximately 2,600 miles of NGL gathering lines owned either by Koch Hydrocarbon or Koch Pipeline. Some of the gathering lines and the NGL distribution lines are FERC regulated and receive tariff payments for transporting raw NGLs and products. Additionally, the business receives income from the 50% interest in the 200-mile FERC regulated gathering pipeline owned by Chisholm Pipeline Co.
As part of the transaction, Oneok also acquired MBFF, LP, which owns an 80% interest in the 160,000 bbl/d fractionator at Mont Belvieu, known as MB1. More than 90% of the EBITDA from this facility is generated by fee-based contracts. Oneok also acquired Koch VESCO Holdings, LLC, an entity that owns a 10.2% interest in Venice Energy Services Company, LLC (VESCO), and owns a gas-processing complex near Venice, LA. The VESCO facility currently processes an average of 800 MMcf/d of natural gas and provides gas gathering, processing, fractionation, storage and distribution services to offshore Gulf of Mexico gas producers.
Initial financing of the transaction which closed earlier this month is through a $1-billion bridge loan with the remainder financed under the company's commercial paper program or borrowings under its existing $1-billion, five-year credit agreement. Permanent financing of the acquisition is expected to come from a combination of available cash, issuance of long-term debt and proceeds from the settlement of the company's equity units in February 2006. At the time the company said it might also use proceeds from the sale of less strategic assets.
As a result of the Koch acquisition, Oneok said it would form a new operating segment, called "Natural Gas Liquids." It will consist of the company's existing NGL marketing business, currently part of the Gathering and Processing segment, and the businesses acquired from the Koch companies, excluding those assets regulated by the Federal Energy Regulatory Commission (FERC), which will be transferred to the company's Transportation and Storage segment. VESCO Holdings, also acquired as part of the Koch transaction, will be transferred to the Gathering and Processing segment.
The Natural Gas Liquids division will be led by Senior Vice President Terry Spencer who will report to John W. Gibson, president, Oneok Energy Companies.
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