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Dynegy, Texaco Join Permian Gathering, Processing

Dynegy, Texaco Join Permian Gathering, Processing

Consolidation in the midstream business continued last week with the announcement Texaco and Dynegy had formed Versado Gas Processors LLC. Versado is a joint venture of both companies' processing facilities in southeast New Mexico and associated gas gathering assets in New Mexico and West Texas. The new company will operate facilities with a combined processing capacity of 341 MMcf/d of gas. Texaco will own 37% while Dynegy will own 63%. Dynegy will operate the plants under contract with Versado.

Included in the joint venture are Texaco's Buckeye and Eunice North and South gathering systems and plants, and Dynegy's Eunice, Monument and Saunders Complex gathering systems and plants. However, Buckeye, which has capacity of 23 MMcf/d but only processes about 8 MMcf/d currently, is slated to be shut down in the next six months.

"This joint venture will allow us to gain efficiencies in operations and economies of scale, as well as strengthen the position of both companies as long-term gas processors in southeast New Mexico. This type of rationalization is further evidence of an overall restructuring initiative undertaken by Dynegy to build profitability, effectively utilize assets and improve performance as we continue to grow the liquids business," said Steve Furbacher, president of Dynegy Midstream Services, formerly Warren Petroleum.

The consolidation arrangement is certainly not unique in the midstream sector of the industry, Furbacher said. "That whole area has four, maybe five, competitors who have systems that are all intertwined, so there are big segments of the system that overlap." As the Permian Basin is a mature play, it's imperative to improve plant utilization so as to reduce costs through cutting compressor fuel consumption and other measures, Furbacher said. "At this point we don't intend to shut any other facilities down, longer term we might, but we're going to be moving gas in between the facilities, so we're going to be putting in pipe to interconnect the plants."

In Waskom, TX, where Dynegy is a partner in a facility with Amoco and NorAm, it's possible another partner could be added to increase efficiency, Furbacher said. "We'll do it in other places where it makes sense."

Creation of Versado Gas Processors enhances Texaco's competitiveness in southeast New Mexico gas and liquids, said Steve Hadden, vice president of Texaco North America Production. "We expect the combination of these assets will allow us to become the most efficient operator in that important market and in so doing add shareholder value."

Joe Fisher, Houston

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