ONEOK Grabs Koch's OK Gathering, Processing

ONEOK Inc. is building up its midstream presence by agreeing to acquire all the Oklahoma midstream gas gathering and processing assets of Koch Midstream Enterprises for $285 million in cash.

The assets include eight gas processing plants and about 3,250 miles of gathering pipeline connected to 1,460 gas wells in Oklahoma. Total capacity of the plants is 515 MMcf/d. The transaction is subject to approval by regulators and the boards of both companies.

David Kyle, president of Tulsa, OK-based ONEOK, said, "These assets are located in an area where ONEOK owns significant natural gas production and development acreage. This will enable the company to continue our strategic objective of maximizing values in all of our non-regulated natural gas operations. We have had partial ownership of some of these assets before, but recent natural gas reserve acquisitions and, more importantly, the opportunity to own gathering systems upstream of the plants will provide greater opportunity in a highly competitive marketplace. We will be focusing on improving the utilization of these assets to maximize their future value."

Also last week, ONEOK formed a strategic alliance with Midland, TX-based Costilla Energy Inc. to capitalize on properties Costilla plans to acquire from Pioneer Natural Resources Co. as well as other potential transactions. ONEOK will participate in Costilla's previously announced $335 million acquisition of Texas oil and gas properties from Pioneer (assuming it is successful) through an equity investment in Costilla preferred stock.

ONEOK's level of participation will be $100 million, $35 million in properties and $65 million in equity. ONEOK will have the option to participate with Costilla in potential future production transactions in the Midcontinent. Specific terms of the agreement were not announced pending approval by the companies' boards of directors.

"ONEOK's investment in Costilla forms the financial cornerstone for our acquisition from Pioneer," said Mike Grella, Costilla Energy CEO. "Just as importantly, this transaction complements our exploration expertise with ONEOK's significant marketing and distribution strengths." The Pioneer deal should close March 31.

In a move to cut debt and costs by reducing its property inventory, Dallas-based Pioneer last September agreed to sell certain oil and gas properties to Costilla. for $410 million. The sale price has since been renegotiated to $335 million. The sale properties represent about 425 domestic fields, primarily in Texas.

Joe Fisher, Houston

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