El Paso Energy Partners L.P. (EPN) announced Wednesday that it has executed a letter of intent to purchase the Chaco cryogenic natural gas processing plant in northern New Mexico’s San Juan Basin, entered into a 20-year, fixed-rate tolling agreement to process gas for El Paso Field Services, and has agreed to buy El Paso Corp.’s 50% interest in a joint venture that owns gas pipeline and gathering systems in the Gulf of Mexico. The value of the transactions was estimated at $284 million.
“These transactions are a continuation of the midstream diversification strategy we initiated for EPN last year. We have now exceeded our objective of investing $500 million in accretive, fee-based acquisitions and high-return organic growth projects for 2001,” said CEO Robert G. Phillips.
The Chaco processing facility, which is located on El Paso Field Services’ 5,500-mile gathering system in the San Juan Basin, is the third largest gas processing plant in the nation, with a processing capacity of 700 MDth/d and natural gas liquids production capacity of 50,000 b/d. Chaco presently is owned by a consortium of banks and is operated by Field Services under a leasing arrangement. EPN said it plans to purchase the Chaco facility from the banks and retain the operating lease with Field Services.
In a related development, EPN has entered into a 20-year agreement with Field Services to process all available volumes delivered to the Chaco plant for a fixed fee, a move designed to insulate EPN from commodity price volatility in the gas processing market. The Chaco transactions are valued at $198.5 million, according to EPN.
EPN also will buy out ANR Pipeline’s 50% interest in Deepwater Holdings LLC, a joint venture between EPN and ANR that owns the High Island Offshore System (HIOS) and the East Breaks Gathering System, both of which serve the western Gulf of Mexico region. The HIOS system consists of 204 miles of pipeline and 1.8 Bcf/d of capacity, and had an average throughput of 1.05 MDth/d during the first half of this year. It transports gas from producing fields located in the Galveston, Garden Banks, West Cameron, High Island and East Breaks areas of the gulf to downstream pipelines, including ANR and Tennessee Pipeline. ANR is owned by El Paso Corp.
East Breaks is an 85-mile gathering system connecting HIOS to the Hoover-Diana project developed by subsidiaries of ExxonMobil and BP in the Alaminos Canyon and East Breaks areas of the gulf. It has an average throughput of 275 MDth/d, EPN said.
“These assets generate stable cash flows, fit well with our existing midstream operations, diversify our asset base geographically and across the midstream value chain, and benefit the long-lived natural gas reserves to ensure a solid return on invested capital. We expect these transactions to be immediately accretive to distributable cash flow, enabling us to increase our annual distribution to unitholders by 15 cents per unit, which totals an 11.4% increase in distributions during 2001,” said Phillips.
Based on the expected closing of the Chaco and Deepwater Holdings transactions, EPN said it anticipates a 15-cent upswing in distributions per common unit to $2.45 per year; a hike in 2001 cash flow to $162 million compared to its previous expectation of $155 million; and a rise in 2001 earnings to $55-60 million compared to an earlier projection of $50-55 million.
EPN is a publicly owned master limited partnership, which owns and operates a diversified set of midstream assets including five offshore gas and oil pipelines, six production handling platforms in the Gulf of Mexico, a salt dome storage facility with 7.2 Bcf of storage capacity in Mississippi, a 450-mile coalbed methane gathering system in Alabama, more than 600 miles of natural gas liquids gathering and transportation pipelines, and three fractionation plants in South Texas.
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