With the Dynegy-Illinova merger nearing completion, Dynegyunloaded some major Midcontinent gathering and processing assetsyesterday in a $307.7 million sale to Oneok in an effort tostreamline its midstream operations. The move will leave Dynegy’smidstream assets focused on several core regions and will helpreduce its new equity offering by several million dollars.

The assets include eight gas processing plants, interests in twoother plants and 7,000 miles of gathering and intrastate pipelinesin Oklahoma, Kansas and the Texas Panhandle. Current throughput is240 MMcf/d with 375 MMcf/d of total capacity. Gas liquidsproduction averages 25,000 barrels per day. Closing of thetransaction is expected by the end of the first quarter.

Dynegy CEO Chuck Watson said the sale is “consistent with ourgoal to concentrate our capital investments in natural gasprocessing in our core Permian and Fort Worth Basins and Gulf Coaststrategic areas. Second, sales of less strategic assets from acrossthe company, which are expected to exceed $600 million by the endof first quarter 2000, will allow us to reduce the expected size ofa new equity offering, to about $250 million, from a range of $400to $500 million, as originally contemplated at the time theproposed merger between Dynegy and Illinova was announced. Finally,by doing so, we will achieve our balance sheet objective andcoverage ratios, thereby preserving and enhancing our creditratings and avoiding unnecessary dilution of shareholders’ownership interests.”

PaineWebber analyst James Yannello said the transaction is”center fairway with Dynegy’s goal of reducing its overall upstreamcommodity price exposure (through portfolio restructuring, hedgesand assets sales). At the same time, it furthers its strategy offocusing its midstream operations on a few key geographicregions… while allowing it to focus more on the downstreammarketing side of the business, where it already is the leader.Expecting this asset disposition to be fairly earnings neutral, ourprojection of the new Dynegy’s 2000 earnings remains at$2.20/share.”

For Oneok, the transaction brings in a significant collection ofassets near its core operations in the Midcontinent. David Kyle,Oneok president and COO, said it is “an excellent complement” toOneok’s existing assets. “We expected this transaction to beaccretive to earnings the first year.”

Meanwhile, the $2 billion Dynegy-Illinova merger, which isscheduled for completion this month, will create a company withmore than $17 billion in revenues and $12 billion in assets. Thenew company is expected to own an interest in merchant powergenerating plants that total more than 14,000 MW of gross domesticgenerating capacity and average world-wide gas sales of 10 Bcf/d.

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