El Paso Pipeline Partners LP agreed Thursday to acquire a majority interest (51%) in both Southern LNG Co. LLC and El Paso Elba Express Co. LLC from El Paso Corp. for $810 million. Southern LNG owns the Elba Island liquefied natural gas (LNG) terminal near Savannah, GA; El Paso Elba Express owns the Elba Express Pipeline, which went into service on March 1.
“The addition of the Elba Island LNG terminal and the Elba Express Pipeline broadens the partnership’s asset base with two high-quality assets,” said El Paso Pipeline CEO Jim Yardley. “Almost all of the total revenues from Elba and Elba Express come from monthly demand charges, making them a perfect fit with our partnership’s existing steady cash flow profile. In addition, these cash flows are supported by long-term contracts with two of the LNG industry’s leading participants.”
The Elba Island LNG receiving terminal has 1.8 Bcf/d of send-out capacity and 7.3 Bcf of storage capacity, which is expected to increase to 11.5 Bcf following the commissioning of a new storage tank this summer (see Daily GPI, March 3). The terminal is fully contracted under agreements with subsidiaries of Shell Oil Co. and BG Energy Holdings Ltd. BG has an option to further expand the terminal to 15.7 Bcf of storage and 2.1 Bcf/d of peak send-out capacity.
Elba Express Co. owns a 190-mile interstate natural gas pipeline with current capacity of 945 MMcf/d that is fully subscribed with a subsidiary of Shell for 30 years. A subsidiary of BG has fully contracted, under a 25-year contract, for a $30 million compression expansion of the pipeline that will increase the capacity up to 1,165 MMcf/d and could be in-service as early as January 2014 (see Daily GPI, Sept. 1, 2007).
The transaction is expected to close by next Wednesday and is being funded with $236 million of cash proceeds from the partnership’s recent equity issuance, $149 million of equity from the issuance of 5.3 million common units to El Paso Corp., a $3 million general partner capital contribution and new debt. With the purchase, the pipeline’s management team plans to recommend a 2 cents/unit, or 6% increase, in quarterly cash distribution to 38 cents/unit ($1.52/unit annualized) beginning in April.
El Paso Corp., which owns 60% of the limited partnership and 2% of the general partner interest, launched the pipeline unit in 2007 (see Daily GPI, Nov. 12, 2007). The partnership owns Wyoming Interstate Co., a 58% interest in Colorado Interstate Gas Co., and a quarter stake in Southern Natural Gas Co.
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