Western Gas Partners LP, which until now has built its portfolio by acquiring assets from parent Anadarko Petroleum Corp., said Tuesday it would pay $303.3 million to buy some midstream properties from Encana Corp.'s U.S. subsidiary.
The Encana Oil & Gas (USA) assets are about 30 miles from Denver in the Denver-Julesberg (DJ) Basin of northeastern Colorado. It is the partnership's first "major" third-party acquisition, said Western Gas CEO Don Sinclair.
"This transaction with a quality producer will increase our position in what we believe is one of the most prolific and exciting basins in North America," he said.
The purchase includes Encana's Fort Lupton, CO, processing plant, which is adjacent to a Western Gas midstream facility. The Encana plant, which is being expanded to 100 MMcf/d, is flowing at 84 MMcf/d, which is total capacity. In addition to the two cryogenic processing trains, Encana's plant also has two fractionation trains with total capacity of 7,900 b/d. Encana has owned and operated the plant since 2000.
Western Gas also agreed to purchase five of Encana's gathering systems, which include 1,054 miles of pipeline, 18 compressors with a total of 14,306 hp, and other related assets. Two of the Encana systems are connected directly to its Fort Lupton plant, while the other three deliver natural gas to the Encana facility via the Western Gas Wattenberg Gathering System.
As part of the transaction, Encana negotiated natural gas processing fees that allow it to continue to extract about 3,500 b/d of natural gas liquids per day from its processed natural gas. The agreement also provides long-term gathering and processing cost stability for Encana's ongoing natural gas development in the DJ basin.
"This divestiture is part of Encana's ongoing initiative to capture significant incremental value from its midstream assets -- natural gas processing plants, pipeline gathering systems and compression facilities," said Renee Zemljak, executive vice president of Midstream, Marketing & Fundamentals. "We are looking to enter into long-term and competitive fee-for-service agreements with industry-leading midstream companies. These arrangements help us optimize value creation of our extensive North American natural gas resources and deliver natural gas to market in the most cost-effective manner."
Encana also has issued a request for proposal to companies interested in buying and completing the construction of the Cabin Gas Plant in northeast British Columbia, Zemljak noted. The plant, in which Encana holds a one-quarter interest, has regulatory approval for two phases of development for total processing capacity of 800 MMcf/d (see Daily GPI, Jan. 12, 2009). Encana, as operator, is building the Cabin plant to serve producers in the Horn River gas play.
Cabin plant construction, now in the "early stage" of building the first phase, is scheduled to begin processing about 400 MMcf/d in 2012.
"We have a variety of midstream assets serving our key resource plays in Canada and the United States and we plan to pursue opportunities that help us enhance value and efficiently deliver our growing natural gas production to market at a low-cost over the long term," Zemljak said.
According to Western Gas, the purchase price of the Fort Lupton assets is about 9.3 times Encana's one-year earnings forecast before interest, taxes, depreciation and amortization. The acquisition also is expected to be immediately accretive to Western Gas' distributable cash flow/unit. Closing is expected by the end of March.
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