If El Paso continues on its current path, there may be nopipelines left to buy. After announcing an agreement to merge withCoastal Corp. only a week earlier, the Houston-based energy giantannounced two more major purchases last week.

The first is a huge transaction covering all of PG&E Corp.’s gas transmission, processing and storage assets in Texas — basically the former Valero Natural Gas Business Unit. The purchase cost $840 million in stock and debt (see related story this issue). It includes 8,500 miles of Texas gas transmission pipelines that transport 2.8 Bcf/d, nine processing plants that currently process 1.5 Bcf/d, and a 7.2 Bcf natural gas storage field.

The second buy covers a portion of the All American Pipeline, acrude oil line El Paso plans to convert to transport gas. The lineruns 1,088 miles to Emidio, CA, from McCamey, TX. Pending completedengineering studies, El Paso said it expects the pipe to flow200-300 MMcf/d from Texas to California.

El Paso is getting good exercise opening its wallet. The Houston-based company completed a purchase of Sonat Inc. last month, and just a few weeks ago announced intentions to merge with Coastal Corp. (see NGI, Jan. 24).

Donato Eassey, an analyst with Merrill Lynch, said he, too,wondered about El Paso’s meteoric growth strategy. “When I askedthem about their insatiable appetite, they said ‘We’re beingselective, but we don’t dictate when particular assets becomeattractive.’ I agree. All of their moves make sense. I haveconfidence that they are not buying just to grow. After the math isdone, I especially like the Coastal and the PG&E deals. I thinkafter the dust settles and people see how these moves will bolsterEl Paso’s bottom line, El Paso’s strategy won’t be questioned asmuch.”

The Federal Trade Commission required El Paso to sell three major pipelines to obtain approval of the Sonat merger (see NGI, Jan. 10). It was required to divest its interest in East Tennessee Pipeline, which was spun off to Duke Energy Gas Transmission. It also had to sell the Sea Robin Pipeline to CMS Energy, and its share in the Destin Pipeline was sold to an undisclosed buyer.

If its latest deals go through, the new El Paso will own or haveinterest in the following major pipelines: El Paso Natural Gas,Midwestern Gas Pipeline, Southern Natural Gas Pipeline, MojavePipeline, Tennessee Gas Pipeline, Florida Gas Transmission,multiple Texas intrastates, ANR Pipeline, Colorado Interstate Gas,Great Lakes Gas Transmission, Wyoming Interstate, and the AllAmerican Pipeline.

Despite all of the movement over the past three weeks, neithermanagement nor John Olson, a consultant with Sander, Morris &Mundy, see anything that might cause the FTC to pause again. “Theremight be some points where these PG&E assets conflict with someCoastal assets, but nothing of any significance,” Olson said.

Adding Access to CA

The All America Pipeline was bought to increase El Paso NaturalGas’ access to the California market. It paid $129 million for thepipe to Plains All American Pipeline L.P. and plans to invest $75million to convert a segment of it from an oil pipeline to a gaspipeline upon FERC approval. The purchase also includes any fiberoptic rights that All American has along the entire 1,233 miles ofpipe.

The conversion from oil to gas will allow El Paso to replaceexisting gas compression facilities with more efficient pipelinelooping, reducing operating, maintenance, and fuel costs for itscustomers, El Paso said. On the east end of El Paso’s system, thepipeline will allow greater inlet capability in response to theincreasing flows on the southern system. The converted pipeline isplanned to go into service during the first quarter 2001.

“The purchase of these facilities presents El Paso Natural Gaswith a unique opportunity to add additional flexibility on itspipeline system that is both operating expense and fuel efficient,”said Patricia A. Shelton, president of El Paso Natural Gas Co.”This purchase helps ready El Paso Natural Gas for the comingdecade with efficiency gains to accommodate the clockwise shift inthe flow of gas in North America.”

After taking into account estimated costs to remove certainequipment and underground piping at various crude oil pump stationsand associated transaction costs, Plains All American estimated netsale proceeds to be $120 million to $124 million. Net proceeds willbe used to reduce outstanding bank debt.

In November 1999, Plains All American announced its intention tosell 5.2 million barrels of crude oil line fill located in thissegment of the line. The line fill sale and the associated purgingprocess are expected to be completed this month.

“The sale of this underutilized pipeline segment representsanother very positive step for the partnership. When completed, theproceeds will enable us to reduce debt and improve our overallfinancial flexibility without a material reduction in our earningscapacity,” said Greg Armstrong, Plains All American’s CEO.

John Norris

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