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Enogex-Transok Pairing Viewed Cautiously

Enogex-Transok Pairing Viewed Cautiously

Oklahoma producers are eyeing the pending purchase of Shell subsidiary Transok by OGE Energy subsidiary Enogex with cautiously optimistic eyes. While the sale would double Enogex's pipeline holdings, it's not clear to Oklahoma market participants what effect the deal will have on competition.

"We're kind of taking a wait and see attitude," said one trader active in the Midcontinent. Will there be objections? "Aw heck, you know somebody's going to [object to the deal] just because they want to. Most of the gathering between the two companies has been pretty competitive in the past. I can't see that there's going to be any large objections from anyone where it would maybe jeopardize the deal."

For the record, competitor Oneok has no plans to contest the deal. "We're not gearing up to do anything in this, but certainly it would be something that would be of great interest," said Oneok spokesman Weldon Watson. "There are no plans on our part to obstruct or try to keep this from happening."

Taking a somewhat more proactive approach is the natural gas committee of the Oklahoma Independent Petroleum Association (OIPA). Last Friday committee Chairman Mike Cross, president of Oklahoma City-based Twister Gas Services LLC, hosted a meeting of about 10, including Enogex representatives, to discuss the potential threat to competition the deal may cause. An initial eyeballing of system maps showed little reason for concern, Cross said, noting there are few areas where Transok and Enogex are the sole competitors.

"Until we spend this weekend and the next few days looking into this, I can't even tell you of a problem that I know exists right this minute."

One area where the producers at least were concerned is with the funding of the purchase. "We wanted to make sure the way to pay for it wasn't going to be to raise rates for producers," Cross said. After listening to Enogex representatives at the Friday meeting, Cross said the producers don't expect any rate increase at the present time on either the Enogex or Transok systems.

Mickey Thompson, OIPA executive vice president said, "I don't have any problem saying historically Enogex, relatively speaking, has been pretty fair as a gas gatherer in Oklahoma. That is, I believe, in their favor. I think it would be remiss on our part if we weren't worried about [the deal]." Thompson noted his membership is hoping recently passed gas gathering legislation will be enough to provide producers an avenue to redress grievances at the Oklahoma Corporation Commission.

A spokesman for the Oklahoma Midcontinent Oil & Gas Association said the group hasn't examined the deal closely.

Enogex has 4,700 miles of pipeline with 1998 throughput of 685 MMcf/d. The company had natural gas liquids (NGL) production of 10,000 barrels/d and has 5 Bcf of storage. Transok has 4,900 miles of pipeline with 1998 throughput of 1.2 Bcf/d, NGL production of 25,000 barrels/d, and 18 Bcf of storage. Benefits of the Transok acquisition, according to Enogex, include increased earnings and cash flow, increased transportation capabilities, and additional marketing flexibility due to increased storage. Enogex says the deal will give producers more options, gas customers more supply options, and create a strong competitor in the deregulated gas market. Enogex plans to fold Transok administrative and field operations into its Oklahoma City, OK, headquarters. However, a presence will be maintained in Tulsa.

Another Midcontinent trader said there are several obvious reasons Enogex wants Transok. "The first is to increase their market share, which [the deal] does. In the natural course of increasing their market share they are also decreasing competition. The other reason is to capture some of the [East-West Oklahoma pricing] spreads out there. Historically, there is about an 8- to 10-cent spread between the West and the East, which makes it profitable to transport gas from the West to the East."

Enogex will be able to "re-optimize" the Transok system as the two serve slightly different markets, the trader noted.

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