El Paso Energy CEO William A. Wise calls his company’s latestplanned acquisition the “yellow brick road” to deep-water Gulf ofMexico gas development. El Paso said it will buy DeepTechInternational’s interests in Leviathan Gas Pipeline through aseries of transactions worth about $450 million. Leviathan GasPipeline Partners produces, processes, gathers, transports andmarkets oil and gas in the offshore Gulf of Mexico.
El Paso will own 100% of the general partner of Leviathan and a27.3% effective interest in the partnership. Subject to requiredapprovals and other conditions, the transactions are expected toclose by the end of the second quarter.
“The Leviathan assets are absolutely unique in the world,” Wisetold analysts during a Monday conference call. “They are the bestassets in the Gulf of Mexico. And when you add those assets to theexisting El Paso assets in the Gulf of Mexico, we have the onlyheader system, if you will, from Matagorda to Mobile. That’s ournew ‘Bakersfield-to-Boston’ slogan for offshore. Matagorda toMobile, the only set of assets that are so situated. This set ofassets is absolutely the yellow brick road to the deep Gulf.”
Leviathan is the largest independent gatherer of natural gas inthe Gulf of Mexico, with interests in pipeline systems thattransported more than 2.8 Bcf/d in 1997. The pipeline systems,which cover a large portion of the Outer Continental Shelf andaccess the prolific deep-water trend, include: the High IslandOffshore System, the U-T Offshore System, the Stingray Pipelinesystem, the Nautilus/Manta Ray Offshore system, the Viosca KnollGathering system and the Poseidon Oil Pipeline. Additionally,Leviathan produces oil and gas from several offshore blocks andowns interests in several multi-purpose offshore platforms thatprocess oil and gas for producers.
Including the assets of Leviathan, El Paso Field Services willbecome the largest gatherer of offshore Gulf of Mexico natural gasand overall the industry’s second largest gatherer of natural gas,with interests in 47 pipeline systems, 25 processing and treatingplants, and 8 offshore platforms. El Paso Field Services’ totalcompany-wide gathering and processing volumes will exceed 5 Bcf/d,with offshore Gulf of Mexico volumes of more than 2.6 Bcf/d.
“Leviathan’s offshore assets together with El Paso FieldServices’ existing offshore assets will create the first offshoreheader system encompassing all areas of Gulf production-fromMatagorda to Mobile. El Paso and Leviathan will be uniquelypositioned to benefit from development of the growing deep-watertrend and ultra-deep opportunities in the Gulf of Mexico,” Wisesaid. “This acquisition is expected to be neutral to earnings pershare for the first 18 months and accretive to earnings thereafter.This transaction increases the income contribution from ournon-regulated businesses and enhances long-term upstream supplyopportunities for Tennessee Gas Pipeline.
“We view the deep-water trend and the ultra-deep as the mostexciting new frontiers for the development of large scale oil andgas reserves in the United States based upon the significantdiscoveries to date, continuing technology advancement indeep-water drilling and production, and the substantial capitalcommitments of the E&P industry. Leviathan has been a leader inthe past few years in the expansion of pipeline and platforminfrastructure to gather these new supplies. We look forward tocontinued growth in the earnings and cash flow of Leviathan whichwill benefit both Leviathan unit holders and El Paso shareholders.”
PaineWebber’s natural gas group upgraded Leviathan to buy fromattractive and cited three benefits to Leviathan created by the”win-win” deal with El Paso. Benefits are improved structure,credibility level in the industry; a quickened pace of cash flowgrowth; and an enhanced ability to frequently raise distributions.
El Paso stockholders approved increasing the company’sauthorized common shares in anticipation of a 2-for-1 stock splitin the form of a 100% stock dividend. The shareholders agreed toincrease the number of authorized common shares from 100 million to275 million. The stock split will be effective on April 1, 1998 forshareholders of record on March 13, 1998.
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