With the $2.2 billion Duke Energy will get for the sale ofPanhandle Eastern and Trunkline pipelines burning a hole in itspocket, the company’s field services division has agreed to buy thegas gathering, processing, fractionation and natural gas liquids(NGL) pipeline business of Union Pacific Resources (known asUPFuels) and UPR’s gas and NGL marketing activities for $1.35billion.

Announced about three weeks after the sale of the interstates,the deal will make Duke Energy the nation’s largest producer ofNGLs with production exceeding 200,000 barrels/d. Current Dukeproduction is about 115,000 barrels/d. Duke also will become one ofthe largest gas gatherers and one of the largest marketers of gasand NGLs in the United States.

The acquisition increases to 60 from 41 the number of processingfacilities in which Duke owns all or a partial interest. It alsoincreases to 47 from 30 the number of processing plants the companyoperates. The acquisition adds 2.3 Bcf/d of processing capacity tothe existing 4.6 Bcf/d of capacity for a total of 6.9 Bcf/d. Italso expands Duke Energy’s fractionation capacity by 118,000barrels/d for a combined total of 200,000 barrels/d. Additionally,it adds 7,200 miles of pipeline to Duke’s existing 19,800 miles ofpipe for a total of 27,000 miles.

“The purchase of these assets advances Duke Energy’s strategy ofgrowing its non-jurisdictional earnings, and positions Duke EnergyField Services as a major, top-tier participant in theconsolidating midstream gas industry,” said Jim Mogg, CEO of FieldServices.

Mogg said Duke expects liquids prices to remain depressed,rising only slightly through 1999 with stronger improvement tofollow. “The good news is these low liquids prices provide anexcellent buying opportunity for assets.”

Under the agreement, much of UPR’s U.S. production will begathered and processed by Duke for a minimum of 10 years. UPR alsowill dedicate for five years most of its gas and NGL production toDuke for marketing.

UPR’s gas processing and marketing business, UPFuels, is theseventh largest processor of gas in the U.S. with interests in 19gas processing plants and 7,200 miles of pipelines that support theplants. Included in the sale are six fractionation plants owned andoperated by UPFuels and two others in which the company holdsinterests.

UPFuels ranks as one of the largest marketers of gas and gasliquids in the United States. The unit employs about 600 people,two-thirds of whom are based at field facilities.

“These assets will give us a much greater market presence inareas that we believe will see significant growth, such as Texas,Louisiana and the Rocky Mountains,” said Rick Priory, Duke EnergyCEO. “These assets are strategically located in parts of thecountry where Duke Energy will focus on developing regional energycenters. We believe growth opportunities in natural gas processingand gathering will offer better returns for our shareholders overtime.” It was noted that the assets Duke sold were jurisdictionalpipelines. It retained the marketing and midstream operations itacquired with PanEnergy a year and a half ago, and now is adding tothem.

“The sale is the latest and largest step in our de-leveragingprogram,” said UPR CEO Jack Messman. “It allows UPR to reduce debtand to concentrate on highly desirable exploration and developmentopportunities in the U.S., Canada and Latin America.”

“When we acquired Norcen Energy Resources earlier this year ourgoal was to increase our upstream opportunities and establish aninternational upstream presence. The Norcen acquisition was a veryimportant step toward our goal of shifting UPR from its identity asa leading U.S. oil and gas company to a North Americanmega-independent with an excellent position in Latin America.”

UPR first outlined its de-leveraging program earlier this year,with an objective of reducing debt by $2 billion within 18 to 24months. The company set a target of $600 million from the sale ofnon-strategic exploration and producing properties. It is ahead ofits de-leveraging schedule and expects about $700 million ofexploration and production asset sales to close before the end ofthe first quarter, with $368 million of that amount having alreadyclosed.

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