Dallas-based Energy Transfer Partners LP (ETP) on Friday moved into the interstate natural gas pipeline business with its announcement to acquire Transwestern Pipeline. The series of transactions with GE Energy Financial Services and Southern Union Co. is valued at about $1.47 billion.

Transwestern Pipeline connects supply areas in the San Juan Basin in southern Colorado and northern New Mexico, the Anadarko Basin in the Midcontinent and the Permian Basin in West Texas to markets in the Midwest, Texas, Arizona, New Mexico and California. The system also interconnects with ETP's existing intrastate pipelines in West Texas.

ETP plans to finance more than 50% of the purchase price with equity and expects the transaction to immediately add to its common unitholders upon closing.

"This is the partnership's first acquisition in the interstate pipeline arena, and one which provides an additional platform for growth," said Mike Smith, ETP vice president of mergers and acquisitions. "Transwestern provides Energy Transfer Partners with access to reserves in the San Juan, Piceance and Rockies' basins, and allows us to participate in markets to the West.

"The acquisition of Transwestern also provides producers on our Texas system with access to these western markets," said Smith. "Our proven track record of investing additional capital to expand our pipeline systems and increase interconnect access has provided natural gas producers with multiple markets and has benefited natural gas consumers by moving gas out of the rapidly expanding production areas to those systems supplying customer needs."

The agreements provide for a series of transactions in which ETP will acquire all of the member interests in CCE Holdings LLC that are owned by GE Energy Financial Services and certain other investors. The member interests acquired will represent a 50% ownership in CCE, which was formed in 2004 to purchase CrossCountry Energy from Enron Corp. (see Daily GPI, Nov. 19, 2004). In the second transaction, CCE will redeem its 50% ownership in CCE of ETP in exchange for 100% ownership of Transwestern Pipeline Co. LLC, which will give Southern Union all of the member interests of CCE.

When both transactions are closed, CCE will be 100% owned by subsidiaries of Southern Union, which will own 50% of Citrus Corp., the holding company for Florida Gas Transmission, and which will be responsible for $455 million in indebtedness. The remaining 50% of Citrus is owned by an affiliate of El Paso Corp. From an operating perspective, Southern Union expects the transactions to be neutral on near-term earnings per share.

The CCE transactions follow the closing earlier this year of Southern Union's $1.6 billion acquisition of the Sid Richardson Energy Services natural gas gathering and processing business (see Daily GPI, Dec. 19, 2005), and the divestitures last month of its Pennsylvania and Rhode Island gas local distribution companies for $1.15 billion (see Daily GPI, Aug. 28).

"We see several benefits to these transactions," said Southern Union CEO George L. Lindemann. "With our increased investment in Florida Gas, we are upgrading our risk profile, enhancing our strategic position, and preserving our capital while still allowing us to grow well into the future in the strong Florida market."

Southern Union's Eric D. Herschmann, senior executive vice president, added, "Transwestern Pipeline has more strategic value to Energy Transfer, and we believe that in the capable hands of ETP, Transwestern will continue to be a key component of the energy infrastructure in the southwestern United States."

Up to now, ETP's gas transportation and storage operations have been centered in Texas and Louisiana. ETP operates three natural gas storage facilities located in Texas, and it has about 11,700 miles of pipeline in service, with an additional 550 miles under construction to expand services in the Barnett Shale (see Daily GPI, June 12). ETP also is one of the largest retail marketers of propane in the United States, serving more than one million customers from 440 customer service locations in 40 states extending from coast to coast and Alaska.

The transactions are expected to close in the fourth quarter, pending regulatory approval. ETP has scheduled a conference call to discuss the transactions at noon EST on Monday. The dial-in number is (800) 230-1059; participant code Energy Transfer Partners.

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