Lured by the chance to be a main supplier for the wealth ofgas-fired power plants planned for Texas, Aquila Energy bought theKaty Hub from Western Gas Resources last week. The $100 milliondeal is expected to close by April 30, although it still needs toclear the Federal Trade Commission’s Hart-Scott-Rodino Act.

The 2,200-acre subsurface Katy storage facility has a totalcapacity of 27.2 Bcf and a working capacity of 20 Bcf. It connectsto 11 pipelines including Transco, Tennessee, Koch, Oasis and LoneStar. The facility has an operational withdrawal capacity of 52.5MMcf/d and an injection capacity of 25 MMcf/d.

“This will become a very important asset in North Americanmarkets as new gas-fired power plants are brought onstream in thenext few years,” said Ed Mills, Aquila COO. Aquila expects5,000-8,000 MW in new gas-fired generation to go onstream in Texasbetween 1999 and 2001. “That’s the area we hope this storagefacility will service,” said Ethan Hirsh, an Aquila spokesman.Hirsh said Aquila is involved in negotiations with power plantsalready but could not provide more information.

“We liked the fact that the Katy Hub is a big name throughoutthe industry, as well as the fact that 11 different pipelinesconnect to it,” said John Shealy, vice president of Aquila NaturalGas Partners Group. “On the storage side, it significantlyincreases our available capacity, and on the marketing side thedeal allows us to offer a wider range of services to ourcustomers.”

The purchase represents Aquila’s entrance into the Gulf Coaststorage market. Hirsh said this facility is Aquila’s firstwholly-owned storage plant in the area.

“I think it will work out very well for us,” an Aquila marketersaid. “We have an interest in the Oasis pipeline, which runs rightinto the storage facility, but until now, it didn’t have muchstorage on it. If this deal goes through, I think it will help outa great deal operationally. We’ll have a whole lot more controlover what gas goes where and a lot more flexibility.” Aquila owns35% of the Oasis pipeline.

For Western Gas, the sale marks a change in focus. “We hadpreviously announced that we wanted to sell off $100-150 million inorder to reduce debt and redeploy dollars,” said Ron Wirth, aWestern Gas spokesman.”Although the Katy Hub has been a solidasset for us, We felt we could provide the same service to ourcustomers without owning the Hub, as well as increase ourinvestments to our Wyoming operations.” Western Gas is leasing 3Bcf at the facility from Aquila, and Wirth said Western Gas alsoleases from other storage facilities in the area.

Western also announced the sale of the Giddings Gathering Systemin the Austin Chalk region of Southeast Texas. An undisclosed partypurchased the $36 million system. System throughput in 1998 was 50MMcf/d.

“Certainly these two sales largely meet the goals we set out toattain,” Wirth said. I’m not saying that’s it. There might be somemiscellaneous deals still to come. But primarily, these were thetwo deals we had in mind.”

Western Gas’ Wyoming operations include an interest in 800,000acres of the Powder River Basin. Wirth said Western produces,ships, and sells gas produced from these assets. The company hasplans to expand development in areas of Southeast Wyoming.

John Norris

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