El Paso Field Services continued its strategy of growingshort-term earnings in its midstream business while working tosecure long-term strategic gas supply for its affiliated pipeline,El Paso Natural Gas.

The company last week agreed to buy Tulsa, OK-based Oneok Inc.’s42.3% interest in the Indian Basin Gas Processing Plant andgathering system for $55 million. The deal is expected to close bythe end of March. The Indian Basin Plant, operated by Marathon Oil,is in Eddy County, NM, and has processing capacity of 240 MMcf/d,producing more than 10,000 b/d of natural gas liquids. The plant isrunning full now, according to El Paso. Oneok acquired its majorityinterest in the plant when it acquired the gas properties ofWestern Resources in 1998.

The facilities are adjacent to El Paso Field Services’ 800-mileCarlsbad gathering system and include a cryogenic processing plantand amine treating facility, plant and field compression totaling20,000 horsepower and more than 60 miles of gathering line. Currentthroughput is about 225 MMcf/d.

“These assets provide an outstanding fit with our existingCarlsbad gathering system, which has seen consistently strongdrilling and volume increases over the last several years,” saidRobert G. Phillips, El Paso Field Services president. “We have beenlooking for the right opportunity to strengthen our processing andtreating capabilities in this area and this plant, with itspercentage-of-proceeds-style contracts and proximity to ourexisting assets, will significantly contribute to our growth in2000.”

The processing plant will enable El Paso Field Services togather the region’s wet gas, something it cannot currently do.”There’s a lot of new production in the area that is becomingincreasingly rich, and we felt like we were missing an opportunityto compete for new reserves being developed in the area,” Phillipssaid. “We have pretty significant reserve evaluations of the area.It’s a very competitive area. It’s a great plant. It’s fairly new.We don’t have to do anything other than tie our Carlsbad gatheringsystem into the new plant.”

The plant acquisition also fits in to the longer-term strategyof pipeline El Paso Natural Gas by enabling Field Services toaggregate more supplies for the pipeline. The Indian Basin planttraditionally has processed gas for Natural Gas Pipeline Co. ofAmerica (NGPL), a pipe that serves the midwestern U.S. El PasoNatural Gas serves the California market.

“Over the long-term, we would hope that because of the strengthof gas demand in California that that would increase prices on ElPaso Natural Gas and give us the opportunity to gather and delivermore gas to El Paso Natural Gas.” That would mean taking supplyaway from NGPL.

Phillips said El Paso’s view sees midwestern gas prices beingpushed downward by new Canadian supplies coming from the NorthernBorder and Alliance pipelines. However, on the West Coast, newgas-fired power generation will push demand and prices up. Phillipssaid prices for gas on El Paso should improve over the next two tothree years, benefiting producers on El Paso’s Carlsbad system.

El Paso Field Services embraced the same strategy when it agreed to acquire Texas gathering and liquids businesses from PG&E National Energy Group last month (see NGI Feb. 7). The strategy dates back to El Paso Energy’s acquisition of Leviathan Gas Pipeline in 1998 (see NGI March 9, 1998), Phillips said.

The deal is expected to close by the end of the first quarter2000.

Joe Fisher

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