Houston-based Copano Energy LLC agreed to acquire Denver-based Cantera Natural Gas LLC from Metalmark Capital for $675 million ($562.5 million in cash and nearly 3.25 million class D units), the company said Tuesday.

Cantera’s assets consist primarily of a 51% managing member interest in Bighorn Gas Gathering LLC and a 37.04% managing member interest in Fort Union Gas Gathering LLC, which operate pipeline systems in Wyoming’s Powder River Basin. The Bighorn system includes approximately 238 miles of gathering pipelines, which deliver gas into the Fort Union system. The Fort Union system consists of an approximately 105-mile, 24-inch diameter pipeline with a 62-mile loop.

A portion of the cash consideration will come from Copano’s $335 million private placement of equity, also announced Tuesday, which will be completed at the closing of the transaction, in addition to the $112.5 million of equity placed with the seller. The balance of the cash consideration will be provided through underwritten debt financing. Copano anticipates closing in the fourth quarter, subject to customary closing conditions including antitrust approval.

“We are extremely pleased to expand Copano’s operations into the Rocky Mountain region,” said Copano CEO John Eckel. He said the deal would give Copano:

“Throughput on Cantera’s systems has been limited by takeaway capacity constraints,” Eckel added. “The current expansion project on the Fort Union system, to be fully completed in early 2008, will more than double its throughput capacity. We expect that this and other takeaway capacity expansion projects will increase 2010 EBITDA [earnings before interest, taxes, depreciation and amortization] from the acquired operations to more than twice current levels. Although this transaction is expected to be nominally accretive to Copano’s stand-alone projections in 2008, we anticipate that it will provide double-digit accretion in 2010 and subsequent years.”

Based on Copano’s more diversified geographic footprint and contract mix, on a combined basis, Copano management said it anticipates that it will recommend to the board of directors an increase in the quarterly cash distribution rate (currently an annualized rate of $1.76/common unit) to at least an annual rate of $2.15/common unit beginning with the third quarter of 2008, with appropriate interim increases. Additionally, management anticipates recommending further increases from that level to an anticipated level of $3.00/common unit for the 2010 calendar year. Although Copano will continue to seek additional opportunities for growth through acquisitions and organic projects, the foregoing distribution goals are not dependent on future growth initiatives, the company said.

Morgan Stanley & Co. Inc. served as financial advisor to Copano and provided a fairness opinion to Copano’s board. Bank of America NA provided a commitment for a new $550 million senior revolving credit facility. Citigroup Global Markets Inc. acted as Copano’s agent for the private placement of equity. Vinson & Elkins LLP represented Copano in the transaction and the related equity and debt financings.

Copano is a midstream natural gas company with natural gas gathering, intrastate pipeline and natural gas processing assets in Oklahoma and Texas. Metalmark Capital is an independent private equity firm.

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