GE Energy Financial Services is making its first equity investment in natural gas storage, acquiring a preferred equity interest in the Bobcat salt dome gas storage project in St. Landry Parish, LA, for $65 million from Houston-based private equity fund Haddington Energy Partners III LP (see Daily GPI, June 28, 2006).
Bobcat was sourced and developed by Haddington Ventures LLC and is about 45 miles from the Henry Hub. The investment, which will help cover the project's capital expenditures, enables GE Energy Financial Services to expand in midstream energy, the company said. GE Energy Financial Services already co-owns pipelines, retail distribution and gas processing assets.
GE Energy Financial Services will have a one-time option to convert its preferred interest to 50% common ownership of Bobcat within 90 days of the commencement of the project's commercial operations. RBS Securities acted as advisor to Haddington Energy Partners and is arranging $185 million in senior secured credit facilities to be used in the construction, development and long-term financing.
Bobcat's location, 1.5 miles southwest of Port Barre, allows access to gas from offshore in the Gulf of Mexico and onshore in Texas and Louisiana, as well as from the Barnett Shale, GE Energy Financial Services said. Bobcat will interconnect with five major interstate pipelines -- Florida Gas Transmission Co., Texas Eastern Transmission Corp., Transcontinental Gas Pipe Line Corp., ANR Pipeline Co. and Gulf South Pipeline Co. Bobcat will serve markets in the Northeast, Midwest, Mid-Atlantic and Southeast.
Bobcat is initially planned to provide up to 13.5 Bcf of working storage capacity in two 6.75 Bcf (working capacity) salt caverns. Construction began in December. Service from the first cavern is scheduled to begin during the third quarter of 2008. The second cavern is scheduled to come on line in the third quarter of 2009. Bobcat could be expanded to five caverns, bringing total working gas capacity to about 34 Bcf. The cost of the first two caverns is estimated at $200 million.
To date, Bobcat has contracts for 6 Bcf of working capacity (see Daily GPI, Jan. 9) and has obtained all the necessary permits to begin construction of the first two caverns.
Dan Castagnola, a GE Energy Financial Services managing director, told NGI that while future LNG imports make Bobcat an attractive investment, the value of the storage is not dependent upon LNG. "LNG imports will happen, he said. "But this asset is attractive with and without the LNG." He noted that summer-winter arbitrage is a particularly attractive play for storage.
While Bobcat is GE Energy Financial Services' first equity investment in storage, the group has been a lender to storage projects. At large in the midstream sector, the company invests about $1 billion a year, Castagnola said.
A number of factors have driven up asset values in the midstream and made value harder to find, he conceded. Master limited partnerships (MLP), infrastructure and equity funds all have been hunting for assets. This, combined with low interest rates, has driven up prices. "It's a combination of everything," Castagnola said. "It's a combination of the low interest rates and all the new entrants, which has pushed up prices compared to historical prices.
"It is harder than it used to be to find value, so you do have to move up into more of the development or construction side of the equation where years ago you could just buy operating cash flows."
In August GE Energy Financial Services said it agreed to buy a portion of the Kinder Morgan Inc. (KMI) natural gas retail distribution and related operations for $710 million plus working capital (see Daily GPI, Aug. 15, 2006).
The Bobcat salt dome begins at a depth of 3,700 feet and extends to a depth of 14,000 feet. Beginning 500 feet below the top of the salt dome, each of the two planned caverns will have a maximum diameter of 265 feet and depth of 1,300 feet.
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