Consolidation in the midstream business continued last week withthe announcement Texaco and Dynegy had formed Versado GasProcessors LLC. Versado is a joint venture of both companies’processing facilities in southeast New Mexico and associated gasgathering assets in New Mexico and West Texas. The new company willoperate facilities with a combined processing capacity of 341MMcf/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 EuniceNorth 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 onlyprocesses about 8 MMcf/d currently, is slated to be shut down inthe next six months.

“This joint venture will allow us to gain efficiencies inoperations and economies of scale, as well as strengthen theposition of both companies as long-term gas processors in southeastNew Mexico. This type of rationalization is further evidence of anoverall restructuring initiative undertaken by Dynegy to buildprofitability, effectively utilize assets and improve performanceas 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 themidstream sector of the industry, Furbacher said. “That whole areahas four, maybe five, competitors who have systems that are allintertwined, so there are big segments of the system that overlap.”As the Permian Basin is a mature play, it’s imperative to improveplant utilization so as to reduce costs through cutting compressorfuel consumption and other measures, Furbacher said. “At this pointwe don’t intend to shut any other facilities down, longer term wemight, 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 withAmoco and NorAm, it’s possible another partner could be added toincrease efficiency, Furbacher said. “We’ll do it in other placeswhere it makes sense.”

Creation of Versado Gas Processors enhances Texaco’scompetitiveness in southeast New Mexico gas and liquids, said SteveHadden, vice president of Texaco North America Production. “Weexpect the combination of these assets will allow us to become themost efficient operator in that important market and in so doingadd shareholder value.”

Joe Fisher, Houston

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