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Oneok Selling Texas Panhandle Gas Gathering Assets for $528M

Oneok Inc. said last week it will sell a substantial segment of its natural gas gathering and processing assets for $528 million to Eagle Rock Energy, a privately held company based in Houston. The properties in the Texas Panhandle include six gas processing plants with 150 MMcf/d of capacity and current average throughput of 70%, 3,700 miles of gas gathering lines, and estimated natural gas liquids production of 13,500 bbl/d.

The assets being sold represent $52 million of the $130 million, or 40% of the 2005 operating income for the gathering and processing segment, which was included in the company's Aug. 1, 2005, guidance. Annual depreciation expense for these assets is about $9 million. About 95 Oneok employees associated with the assets are expected to be hired by Eagle Rock.

"While we remain committed to our gathering and processing business, this sale is consistent with our strategy of selling less strategic assets," said CEO David Kyle.

Moody's Investors Service recently downgraded Oneok's debt from Baa1 to Baa2, saying "our decision to lower the ratings focuses on the company's continuing strategy of acquiring and selling assets that expose debtholders to ongoing event risk....In our view, Oneok is more transaction-oriented than many of its peers." Moody's issued the new rating after completing its review of Oneok's $1.35 billion purchase of Koch's natural gas liquids (NGL) assets (see NGI, July 25), and the recent sale of its E&P unit (see NGI, Sept. 26).

"While Oneok's recent interest has been to grow its midstream business, its strategic focus over the past eight years has shifted every few years to a degree that has affected its credit quality. The company is as willing to sell assets as to acquire them. Such divestments could be some or all of a business segment, as demonstrated by the recent $500 million after-tax sale of its production segment, which helps to permanently finance the Koch acquisition," Moody's said.

Headquartered in Tulsa, Oneok distributes natural gas to more than two million customers in Oklahoma, Kansas and Texas. Eagle Rock is a Houston-based midstream natural gas provider, and a portfolio company of Natural Gas Partners (NGP), which was founded in 1988. NGP is a family of North American private equity funds managed by NGP Energy Capital Management, based in Irving, TX.

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