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Arcapita Takes Over Falcon Gas Storage

Falcon Gas Storage Co. Inc.'s founding management group has exercised a partial equity sale option and will step down at the end of the year, while retaining a "significant" equity ownership position in the company, it said last week.

John M. Hopper, Jeffrey H. Foutch, Edmund A. Knolle, Keith Chandler and Thomas B. Wynne have been with Falcon since its founding in October 2000 and have led the company from a start-up development company to become one of the largest independent gas storage companies in North Texas, with 35 Bcf of high-deliverability, multi-cycle (HDMC) working gas storage capacity 140 MMcf/d of gas processing capacity, 900 MMcf/d of gas transportation capacity, and more than 4,000 b/d of crude oil and natural gas liquids (NGL) production. The founding management group also has been responsible for the initial development of the MoBay Storage Hub (see NGI, Oct. 20), which is expected to be the largest gas storage project ever developed in the southeastern United States with 50 Bcf of HDMC capacity.

"We had an opportunity to effectuate a partial exit at a relatively attractive evaluation and we felt like in this market if you have the opportunity to do a partial cash-out at a good price, that's probably a good thing to do," Hopper told NGI. "[We] still retain a very significant piece of the equity so when there is a sale somewhere down the road or public offering or whatever it turns out to be, we'll still benefit from that."

The company's board has named a new senior management team consisting of Tore Nelson, James Goetz and Vernon Williams. Goetz and Williams have experience in gas storage development and management. They were responsible for building and managing the Caledonia storage facility in Mississippi. Nelson is an operating partner with Arcapita BSC, Falcon's largest shareholder and equity sponsor, and, as such, is assigned to executive roles within Arcapita's portfolio of companies on an as-needed basis.

Arcapita has owned 80% of Falcon on a diluted basis since July 2005 and has provided financial backing for its projects (see NGI, July 25, 2005). "Arcapita remains strongly committed to Falcon and MoBay," said Arcapita Executive Director Qaisar Zaman. The founding management group will work with the new management through the end of the year, the company said. Falcon executives were not available for immediate comment.

"When we started Falcon over eight years ago, there weren't many new gas storage projects out there," Hopper said. "Starting with a $5 million initial capital infusion, we put together a great team that has successfully developed two HDMC gas storage projects in North Texas, built a significant midstream presence in the Barnett Shale around those facilities with gas processing, pipelines, crude oil and natural gas liquids production, and launched a third project, MoBay, that will be larger than the first two combined. We will be leaving the combined companies with a balance sheet footing exceeding $540 million and well positioned to expand its already strategic footprint in the gas storage and midstream energy space."

Hopper said he has no immediate plans except to "take a little time off.

"Midstream development and operations, including storage, is something we've done for the last eight-plus years, and we certainly have some expertise in it. That would be a natural place to look for opportunities, and we think there are going to be some opportunities out there just because of the economic climate."

Gas storage and other midstream infrastructure in the Gulf Coast region, where Falcon has been active, continues to evolve. Hopper said that once major pipeline projects Midcontinent Express (see NGI, Aug. 4) and Gulf Crossing (see NGI, May 12) come on-line -- as Southeast Supply Header recently has (see NGI, Sept. 15) -- the industry will have more clarity on gas movement and basis differentials. "We will see gas flowing into those projects, and I think that will go a long way toward bringing some clarity to how gas is going to move, what impact it's going to have on basis differentials and where you'd like to have gas storage to take advantage of that," he said.

Houston-based Falcon is one of the largest independently owned developers and operators of HDMC gas storage in the United States. Falcon's NorTex Gas Storage Co. subsidiary owns and operates 35 Bcf of capacity with nearly 1 Bcf/d of aggregate deliverability from the Hill-Lake and Worsham-Steed facilities (see NGI, April 7). Through its MoBay Storage Hub LLC affiliate, Falcon is developing a 50 Bcf HDMC project in southern Alabama with 1 Bcf/d of injection and withdrawal capacity. Falcon subsidiaries also are involved in crude oil production, including enhanced oil recovery; gas transportation, processing and NGL production; and natural gas, crude oil and NGL marketing and trading.

Arcapita is an investment firm with offices in Atlanta, London, Singapore and Bahrain operating four main lines of business: corporate investment, venture capital, real estate investment, and infrastructure and energy investment. To date, Arcapita has completed 74 platform transactions with a total value of approximately $27 billion.

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