Pipes were selling like hotcakes last week as El Paso EnergyCorp. divested its interest in three major pipelines to meetFederal Trade Commission (FTC) conditions set just before El Pasoand Sonat finalized their merger last year. East Tennessee Pipelinewas spun off to Duke Energy Gas Transmission, the Sea RobinPipeline went to CMS Energy and El Paso’s share of the Destin Pipeline was sold toan undisclosed buyer. Combined, all three assets were sold for $620 million.Closings on the sales are expected to occur within the next fewmonths, pending FTC consent, El Paso said.

“The FTC required the sale of these assets in connection withits approval of our merger with Sonat,” said William A. Wise, ElPaso Energy CEO. “We are pleased with the terms of thesetransactions and do not anticipate problems or delays with the FTCapproval.”

The East Tennessee transaction was the largest. Duke bought thepipeline company for $386.3 million. The 1,100-mile pipeline twicecrosses the Texas Eastern Transmission (Tetco) pipeline, owned byDuke Energy. East Tennessee owns and operates two mainline systemsin central Tennessee that converge near Knoxville, TN, extendingthereafter to a point near Roanoke, VA. The pipeline, regulated byFERC, has a design capacity of 700 MMcf/d and provides unbundled,open-access transportation and storage services to 40 localdistribution companies and 16 industrial customers in the region.

“The East Tennessee Pipeline is an excellent fit with DukeEnergy’s natural gas transmission system,” said Robert Evans,president of Duke Energy Gas Transmission. “It extends the reachof our 9,220-mile Tetco pipeline and allows us to access a vibrantgas market in a key strategic region of the country for DukeEnergy. East Tennessee Natural Gas Co. operates an excellentpipeline with long-term customer contracts and an establishedrecord of year-on-year growth.”

Donato Eassey, an analyst for Merrill Lynch, saw positives forboth companies. “Duke is a smart buyer. For the most part, itsfocus is on the East of the Mississippi. It demonstrated that whenit bought the Panhandle companies, then sold all of them except forTexas Eastern. The East Tennessee purchase is clearly in thecorridor of where they want to be.

“Now, El Paso had to sell this asset. It surprises nobody. Ithink the price was fair to both sides. What encourages me is thatthe loss of this asset, as well as the sale of the other two, won’timpact earnings because of the synergies created in the merger. ForEl Paso, it’s a push.”

East Tennessee’s sale was ordered because, when combined withSonat’s pipeline assets, it presented “potential opportunities formonopolies” in Tennessee, Georgia and the Carolinas, the companysaid. The FTC also believed Sonat’s interest in Destin, when joinedwith the Viosca Knoll Gathering System [Leviathan owns 99% and ElPaso Field Services owns 1%], could lead to a monopoly-typesituation in the offshore Mississippi and Louisiana areas.

The Sea Robin and Destin systems were sold for a total of$232 million plus a transition service agreement on the Sea Robinline. CMS bought Sea Robin, which consists of five offshore valve platforms and onecompressor platform, 405 miles of offshore pipeline, 40 miles ofonshore pipeline and one compressor station, for $72 million plus the service agreement. The system connects toa producer-owned processing plant and liquids separation facilityand accesses the Henry Hub.

The FTC ordered the divestiture of Sonat’s Sea Robin because itbelieved the offshore system, along with El Paso’s 34.5% interestin Leviathan Gas Pipeline Partners LP, would give the mergedcompany monopoly power over gas gathering in the Gulf of Mexico,according to El Paso. It estimated that Sea Robin and Leviathancombined gather about 70% of the gas in the Gulf.

“The acquisition of Sea Robin allows CMS to significantlyincrease its gas supply gathering resources in the Gulf of Mexico,”said Chris Helms, president of CMS Panhandle Pipe Line Companies.”Sea Robin will give CMS another offshore pipeline system in themajor North American supply basin of the Gulf of Mexico and willprovide access to promising natural gas development areas of thecentral and western Gulf. This system, in combination with ourexisting assets, will be a platform for CMS to provide increasedgas services to producers and shippers, as well as providing newsupply sources for the company’s Trunkline Gas pipeline system.”

Sea Robin also is a key acquisition to developing the CMS FieldServices unit strategy, Helms added. “The company intends toemphasize the Gulf Coast as a new market and commercially operateSea Robin with our existing assets in the Texas and Louisiana GulfCoast to increase pipeline and gas processing capabilities,” Helmssaid. “Sea Robin’s direct access to new supply areas in the Gulf ofMexico will allow CMS Energy to integrate the expertise andoperations of its various business units to create uniqueopportunities for customers and further enhance the company’scommitment to creating an energy value chain.”

The Destin agreement is subject to the first right of refusal ofthe interest by El Paso Energy’s partners in the venture: AmocoCorp., Sonat and Tejas Energy, an affiliate of Shell Oil. The $460million, 250-mile pipeline connects to five interstate pipelines.It has a capacity of close to 1 Bcf/d.

The merger between El Paso and Sonat cleared all regulatoryhurdles last October. The new El Paso’s 40,600 miles of interstatepipe now surpasses Enron’s 32,000 miles and claims the top spot asthe industry’s largest pipeline owner. Its 12.4 Bcf/d of interstatetransport volumes beats Williams and the stand-alone El Paso, bothof which transport 9.2 Bcf/d, for the top spot in that category aswell.

John Norris

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