Crosstex Energy LP took a big leap forward in its Gulf Coast midstream and pipeline expansion plans with the purchase of Louisiana Interstate Gas (LIG) from American Electric Power for $76.2 million.
“The LIG system is a very strategic acquisition for Crosstex because it bridges the gap between our Texas and Mississippi systems and significantly broadens our exposure in the onshore Gulf Coast area,” said Crosstex CEO Barry E. Davis. He said the LIG acquisition is Crosstex’s largest transaction to date.
“The assets, which are very similar to our assets in the Texas Coast, almost double both the miles of pipe we own and the volume of gas moved by our systems,” Davis added.
Davis predicted the company would increase its distributable cash flow in the first year of LIG ownership by $0.40 per unit, resulting in about $5 million/year to general partner and majority interest holder Crosstex Energy Inc. “We will seriously consider increases in the distribution in the first full quarter following the closing of the transaction,” he said.
LIG, which is one of the largest intrastate pipelines in Louisiana, consists of 2,000 miles of gas gathering and transmission in 29 parishes. The system has a capacity of 800 MMcf/d but currently serves about 580 MMcf/d of demand from power plants, municipal gas systems and industrial markets located principally in the industrial corridor along the Mississippi River between New Orleans and Baton Rouge.
Five processing plants owned by LIG give the system the capability to handle rich and lean gas supplies connected to the system. Connections to several interconnected pipelines and the Jefferson Island Storage facility also provide access to additional system supply, providing significant system management flexibility.
Cash-strapped AEP has had LIG and several of its other non-core assets on the auction block for months. Not included in the transaction is Jefferson Island Storage and Hub LLC, which was acquired with the LIG assets from Equitable Resources in 1998 but will be sold separately. Jefferson Island consists of two salt dome gas storage caverns, with 9 Bcf of working gas capacity and two 16-inch diameter pipelines.
AEP said it bought the LIG and Jefferson Island assets from Equitable for $320 million but recorded impairments to the combined assets that reduced their value on AEP’s books to $169 million as of Dec. 31, 2003. The sales price for LIG, minus Jefferson Island, approximates the current book value and is not expected to have a material impact on 2004 earnings, AEP said.
“We’ve committed to divest assets that don’t fit with the core of our long-term strategy,” said AEP CEO Michael G. Morris. “The sale of LIG is an important step toward the completion of this plan. AEP classified the combined LIG assets as a discontinued operation held for sale during the fourth quarter of 2003.
“We recognized early in this process that selling the Jefferson Island assets separate from the pipeline would bring greater value,” he added. “We expect that transaction to be completed before mid-year.”
Closing, which is subject to completion of certain conditions by AEP and Crosstex, is expected within 90 days. The deal also requires federal and state regulatory approval.
AEP also continues its work to divest its operations in the United Kingdom, also classified as discontinued during the fourth quarter. “We expect the UK assets to be sold toward the end of the year, although we will complete the transaction as soon as possible,” Morris said. “We also continue work to shed other smaller non-core investments. These transactions will eliminate assets that have masked the continued strong earnings of our utility operations and move us closer to the performance and stability valued by investors.” Proceeds from the LIG sale will be used to reduce debt and strengthen the AEP balance sheet.
Dallas-based Crosstex said the LIG acquisition will increase its assets to 4,500 miles of pipeline, 1.2 Bcf/d of transported volumes and over 700 MMcf/d of processing capacity.
The acquisition is being financed through the company’s existing credit facilities. After the deal, the company’s capital structure, on a pro forma basis, will be 47% debt and 53% equity.
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