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Sempra Snags Mexican Gas Assets From El Paso

March 1, 2010
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Houston-based El Paso Corp. last week agreed to sell its interests in some of its Mexican natural gas pipeline and compression assets to Sempra Pipelines & Storage for $300 million.

The sale to the Sempra Energy unit includes El Paso's half-stake in a joint venture (JV) with Petroleos Mexicanos (Pemex), the Mexican state oil company. Pemex owns various pipeline assets in northern Mexico in the state of Sonora close to the Texas border. El Paso also agreed to sell its 100% interest in a pipeline that originates at the Arizona border.

"This acquisition expands our scale and geographic footprint in one of the strongest growth regions in Mexico, while providing entry into the emerging propane pipeline business," said Sempra Pipelines CEO George S. Liparidis. "These pipeline assets are backed almost entirely by long-term contracts and have a history of delivering solid, predictable revenue streams; allowing us to build a stronger platform for growth in the country."

The pipeline and natural gas infrastructure assets being acquired are supported by customer contracts with an average duration of 13 years, he said.

Under the agreement, Sempra Pipelines is to acquire El Paso's seven-mile Agua Prieta natural gas pipeline and Naco compressor station in Sonora, which delivers natural gas from the U.S. border to a Mexico power plant that provides electricity to Mexico's state-owned electric utility.

Also to be acquired by Sempra Pipelines is El Paso's JV interest in the 23-mile, 24-inch diameter Samalayuca natural gas pipeline and Gloria a Dios compressor station in Chihuahua, which supply natural gas from the United States to various Mexican power plants; the 70-mile, 36-inch diameter San Fernando natural gas pipeline in the state of Tamaulipas; and the 114-mile, 12-inch diameter pipeline that transports liquid propane from the Burgos production area to a delivery facility near the city of Monterrey.

Upon closing, Sempra also would acquire the right of first refusal to buy Pemex's half interest in the projects, which the Mexican government has now ordered the state oil company to do, according to a San Diego-based Sempra spokesperson.

The main attractions for Sempra in acquiring these assets are the long-term contracts in Sonora with Mexican government-operated electric generation plants, industrial customers and local gas distributors; and the fact that the new assets are complementary to some of Sempra's existing infrastructure in Mexico, some of which is in Sonora.

In last week's conference call with analysts, Sempra officials said the company was pursing other paths to growth as they contemplate the sell-off of the RBS Sempra Commodities JV (see related story).

El Paso CEO Doug Foshee said the sale of the Mexican properties is part of the company's $300-500 million divestiture plan this year. However, "while we're exiting this joint venture, Pemex will continue to be an important customer of our U.S. pipelines. Our relationship is long-standing and highly valued."

Subject to lender consent and Mexican regulatory approval, the transaction with Sempra is expected to close by the end of June. The acquisition is expected to be accretive to Sempra Energy's earnings by 5 cents/share in 2010 and 10 cents in 2011.

El Paso is not selling its JV interest in the proposed Sonora liquefied natural gas (LNG) terminal and pipeline project, said spokesman Richard Wheatley. DKRW Energy LLC and a subsidiary of El Paso in late 2006 received three environmental permits from Mexican officials for the proposed LNG terminal and 1 Bcf/d pipeline facilities (see NGI, Dec. 25, 2006). Construction of the terminal originally was scheduled to begin in 2008, but the final schedule was to be dictated by the needs of LNG shippers and clients.

The Sonora project "remains an active, longer-term project, holding significant potential for El Paso/DKRW," Wheatley told NGI. "We are continuing to seek to secure Pacific Rim LNG supplies that traditionally have been oriented to the Japanese and Korean markets. We remain confident that, at some point, the project will prevail and become the North American key West Coast access point for Pacific LNG supplies.

"As of now, the Sonora LNG project anticipates a 2014-2015 commercial operation date, subject to reaching agreement with key suppliers that would secure capacity in the terminal and associated pipelines."

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