El Paso Partners See More Deep Water Opportunities

El Paso Energy Partners L.P.(EPN) is in the process of deciding among a number of opportunities for major new projects in the deepwater Gulf of Mexico, following on its successful installation of the Prince Tension Leg Platform (TLP) last month in the Ewing Bank Block 1003 (see NGI, July 23), according to CEO Bob Phillips.

The platform is El Paso's first, and has been rated a "significant technical and commercial achievement." Production should start to flow in September, Phillips said. Going forward, the opportunities available include several other TLPs in the deep Gulf and expansions of its Poseidon oil pipeline. "There's a lot of action in the deepwater trend. We're seeing a lot more interest from the mid-size producer community since they have seen we have the ability to do something unique," Phillips said. He pointed out that Prince came in at a relatively low cost compared to other, larger deep water models, and it was completed in a much shorter time. "We hope to be successful in building more platforms. There are a number of mid-size fields to be tapped. Also, there are some significant oil pipeline opportunities, as well as potential for expanding Poseidon."

Questioned by analysts at EPN's second quarter earnings teleconference, Phillips said the opportunities currently being floated would total several billion dollars. "There is that much infrastructure to be built, for platforms to develop all the mid-size fields, plus some other items. There's a lot more projects out there than there is capital to build them. I think we have a good shot at a number of them. We have to make some choices." The company is looking at opportunities to partner in some of the ventures, Phillips said, noting that the shallower shelf was originally built out through joint ventures. EPN could build and operate more TLPs, but would not want to own more than 50% of the projects, he added.

The company reported record cash flow or adjusted EBITDA of $36.9 million for the second quarter of 2001, up 32% from the second quarter of 2000. Net income before non-recurring items was $17 million, more than double the $8.4 million at the same time last year. The increases reflect significant contributions from Crystal gas Storage and EPN Texas natural gas liquids transportation and fractionation assets that were acquired from El Paso Corp. in September 2000 and March 2001.

Phillips said the pace of acquiring new assets had slowed in the second quarter as the company studied the possible "organic" opportunities, versus acquiring assets that would contribute immediately to cash flow. The company has another $300 million to invest by the end of the year, and is seeking "the right balance." Phillips said EPN expects to add an extra 10 to 15 cents to distributions by the end of the year, bringing the annualized figure to $2.45.

In other areas, Phillips said the company's storage business was "solid," with fields 80% full by the end of the second quarter. EPN is continuing a "very aggressive" expansion of its Petal and Hattiesburg fields and will start collecting on the contracted expansions in the second quarter of next year.

Its pipeline expansion --a 60-mile connection with Tennessee, Southern Natural, Destin and Transco pipelines --is also on schedule, and it has been "very successful drilling in South Texas." EPN is starting see a firming of liquids prices and could be interested in more natural gas liquids assets.

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