El Paso Pipeline Partners LP (EPB) is buying an additional 22% stake in southeastern interstate pipeline system Southern Natural Gas Co. (SNG) from El Paso Corp., the parent of both companies, for $587 million.

The master limited partnership would own an 82% interest in SNG once the transaction closes, which is expected by the end of this month. EPB also has a 45-day option to purchase an additional 3% interest in SNG for about $27 million for each additional percent.

"The acquisition of additional interests in SNG continues our momentum from 2010 and allows us to maintain our excellent distribution growth profile," said EPB CEO Jim Yardley. "In addition to providing immediate accretion to our unitholders, this acquisition increases our interest in SNG, which is strategically located in the region with the highest expected growth rate for natural gas demand in the country."

El Paso's pipeline unit performed above expectations in 2010, and in the final three months of the year it earned $374 million, versus $367 million in 4Q2009. EPB has several pipeline expansions slated to be completed this year, including Phase II of SNG's South System III.

SNG's throughput volumes in 4Q2010 were 2,542 billion Btu/d, compared with 2,329 billion Btu/d in the year-ago quarter. SNG's 2010 volumes totaled 2,505 billion Btu/d versus 2009 volumes of 2,322 billion Btu/d.

The transaction would be financed with debt, by issuing additional units or with a promissory note to El Paso Corp. EPB also plans to recommend that El Paso Pipeline GP Co. LLC, the general partner, boost quarterly cash distributions to 46 cents/unit, or $1.84/unit annually, beginning with 1Q2011 distribution. In 1Q2010 EPB paid unitholders 38 cents/unit.

El Paso Corp. owns a 49% stake in EPB and a 2% interest in the general partner. In addition to its stake in SNG, EPB owns Wyoming Interstate Co., Southern LNG Co. LLC, Elba Express Co. LLC and a 58% interest in Colorado Interstate Gas Co.

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