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Aquila Buys Katy Hub and Storage from Western Gas

Aquila Buys Katy Hub and Storage from Western Gas

Lured by the chance to be a main supplier for the wealth of gas-fired power plants planned for Texas, Aquila Energy bought the Katy Hub from Western Gas Resources Monday. The $100 million deal is expected to close by April 30, although it still needs to clear the Federal Trade Commission's Hart-Scott-Rodino Act.

The 2,200-acre subsurface Katy storage facility has a total capacity of 27.2 Bcf. It connects to 11 pipelines including Transco, Tennessee, Koch, Oasis and Lone Star. The facility has an operational withdrawal capacity of 52.5 MMcf/d and an injection capacity of 25 MMcf/d.

"This will become a very important asset in North American markets as new gas-fired power plants are bought onstream in the next few years," said Ed Mills, Aquila COO. Aquila expects 5,000-8,000 MW in new gas-fired generation to go onstream in Texas between 1999 and 2001. "That's the area we hope this storage facility will service," said Ethan Hirsh, an Aquila spokesman. Hirsh said Aquila is involved in negotiations with power plants already but could not provide more information.

"We liked the fact that the Katy Hub is a big name throughout the industry, as well as the fact that 11 different pipelines connect to it," said John Shealy, vice president of Aquila Natural Gas Partners Group. "On the storage side, it significantly increases our available capacity, and on the marketing side the deal allows us to offer a wider range of services to our customers."

The purchase represents Aquila's entrance into the Gulf Coast storage market. Hirsh said this facility is Aquila's first wholly-owned storage plant in the area.

"I think it will work out very well for us," an Aquila marketer said. "We have interest in the Oasis pipeline, which runs right into the storage facility, but until now, it didn't have much storage on it. If this deal goes through, I think it will help out a great deal operationally. We'll have a whole lot more control over what gas goes where and a lot more flexibility." Aquila owns 35% of the Oasis pipeline.

For Western Gas, the sale marks a change in focus. "We had previously announced that we wanted to sell off $100-150 million in order to reduce debt and redeploy dollars," said Ron Wirth, a Western Gas spokesman. "Although the Katy Hub has been a solid asset for us, We felt we could provide the same service to our customers without owning the Hub, as well as increase our investments to our Wyoming operations." Western Gas is leasing 3 Bcf at the facility from Aquila, and Wirth said Western Gas also leases from other storage facilities in the area.

Western also announced the sale of the Giddings Gathering System in the Austin Chalk region of Southeast Texas. An undisclosed party purchased the $36 million system. Throughput in 1998 for the system was 50 MMcf/d.

"Certainly these two sales largely meet the goals we set out to attain," Wirth said. I'm not saying that's it. There might be some miscellaneous deals still to come. But primarily, these were the two deals we had in mind."

Western Gas' Wyoming operations include an interest in 800,000 acres of the Powder River Basin. Wirth said Western produces, ships, and sells gas produced from these assets. The company has plans to expand development in areas of Southeast Wyoming.

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