Continuing its strategy to be a heavy hitter in the Gulf Coast natural gas liquids market, Enterprise Products Partners LP of Houston last week acquired Tejas Natural Gas Liquids LLC from Shell Oil affiliate Tejas Energy LLC and signed a long-term gas processing agreement with Shell for its entire bounty of Gulf of Mexico gas production. The deal was announced in April.

In exchange for its NGL business, Tejas Energy received 14.5 million convertible special partnership units in Enterprise, giving it an 18% ownership interest in the company, and $166 million in cash. Tejas also has the opportunity to increase its ownership in Enterprise to 23.8%.

The deal forms one of the Gulf Coast’s largest NGL processing, fractionation, storage, transportation and marketing businesses. All of Tejas’ NGL assets in Louisiana and Mississippi are included in the agreement. This includes its varying interests in 11 gas processing plants (including one under construction) with a combined gross capacity of 11 Bcf/d and net capacity of 3.1 Bcf/d; four NGL fractionation facilities with a combined gross capacity of 281,000 b/d and net capacity of 131,500 b/d; four NGL storage facilities with about 29.5 million barrels of gross capacity and 8.8 million barrels of net capacity; and more than 2,100 miles of NGL pipelines.

Upon the completion of Enterprise’s previously announced $245 million, 160,000 b/d NGL pipeline development, expected to be finished in the second half of 2000, the company’s NGL production will have access to the major NGL markets on the Texas and Louisiana Gulf Coast through the Dixie Pipeline, and to global markets through Enterprise’s export facilities on the Houston Ship Channel. Neither Enterprise nor Shell would disclose the volume of Shell’s gas production from the Gulf.

“This transaction establishes a long-term relationship between the largest oil and gas producer with the largest lease position in the NGL-rich deep-water developments in the Gulf of Mexico and the leading midstream provider of NGL fractionation, storage and transportation services,” said O.S. Andras, Enterprise CEO. “This transaction is expected to be immediately accretive to cash flow for our unit holders and should provide Enterprise with several avenues by which to significantly increase cash flow in the future.” Enterprise management owns about 68% of the company.

“Entering into this partnership with Enterprise creates strong advantages for Shell,” said Walter van de Vijver, CEO of Shell Exploration & Production Co. “We believe the partnership is extremely well positioned to succeed in the NGL business, and it meets our long-term needs for natural gas processing capacity to accommodate our growing deep-water production.”

Benefits of the deal include the long-term gas processing agreement with Shell and the expected increase in NGL production associated with deep-water Gulf of Mexico developments and exploitation of Continental Shelf reserves. The deal also establishes Enterprise across the entire NGL value chain and allows for improved NGL price realizations through access to multiple markets. Enterprise’s management team also will be enhanced with the addition of key personnel from Tejas NGL.

Enterprise said last week Tejas NGL key management members joined the company in similar capacities. Enterprise also announced the formation of an NGL division and a petrochemical division.

The NGL division includes Enterprise’s existing NGL fractionation, pipeline transportation and storage business and the acquired gas processing and NGL fraction, transportation, storage and marketing businesses that were a part of Tejas NGL. A.J. Teague was named president and chief operating officer of the NGL division. He joins Enterprise from Tejas NGL where he was president.

The petrochemical division includes the company’s butane isomerization, propylene fractionation, pipeline transportation, storage, motor gasoline additive and marketing businesses. Albert W. Bell was named president and chief operating officer of the division. Most recently he was Enterprise executive vice president of business management responsible for all commercial activities.

“By operating under two commercial divisions, we will be able to quickly integrate Tejas NGL into Enterprise and lever the assets of the combining organizations to respond to our customers’ needs for cost-efficient services,” Andras said.

In January Tejas Natural Gas Liquids LLC and Enterprise formed joint venture Entell NGL Services LLC to develop a gas liquids transportation and distribution system, building on Enterprise’s existing pipeline facilities in Louisiana (see NGI Jan 11). Tejas Natural Gas Liquids is now a part of Enterprise, as is the Entell joint venture. Enterprise is currently engaged in developing a pipeline linking storage at Breaux Bridge, LA, to Mont Belvieu, TX. The pipeline is to be capable of distributing products from key NGL sources in southern Louisiana directly to major NGL markets, including the lower Mississippi River corridor, Dixie pipeline, Lake Charles, LA, and Mont Belvieu.

In July Enterprise agreed to buy Kinder Morgan Energy Partners LP’s 25% indirect ownership interest in a 210,000 b/d NGL fractionating facility in Mont Belvieu for $41 million in cash and about $4 million in debt assumption. After the deal is complete, Enterprise’s ownership interest in the Mont Belvieu fractionation facility will grow from 37.5% to 62.5%. The fractionator is in Enterprise’s Mont Belvieu processing complex, which also includes butane isomerization, propane/propylene fractionation, MTBE production, underground storage and import/export facilities on the Houston Ship Channel. Enterprise is the operator of the facility.

Mont Belvieu, 25 miles east of Houston, is the hub of the domestic NGL industry because of its proximity to the refinery and petrochemical markets on the Gulf Coast. “NGL fractionation is one of our core, fee-based businesses,” Andras said. “Enterprise has developed, constructed, expanded and operated this facility for almost 20 years.”

Also in July, Entell NGL Services agreed to acquire a Louisiana and Texas pipeline from Concha Chemical Co., a Shell affiliate. The Lou-Tex pipeline is 263 miles of 10-inch line running from Sorrento, LA, to Mont Belvieu. Enterprise is converting a portion of the line to batch service, enabling it to move refinery and chemical grade propylene, mixed NGLs and NGL products. The purchase and conversion is the first step in Enterprise’s development of a $245 million, 160,000 b/d gas liquids pipeline system to link growing NGL supplies from Louisiana and Mississippi with principal NGL markets on the Gulf Coast.

“Due to the lack of transportation infrastructure, NGLs produced in Louisiana and Mississippi have limited access to the United States’ largest NGL market at Mont Belvieu and therefore have traded at a discount,” Andras said in July. “This imbalance of supply and demand is expected to be exacerbated by increases in Louisiana and Mississippi NGL production associated with deep-water Gulf of Mexico natural gas.”

In July Enterprise announced a 26% increase in net income for the second quarter to $19.2 million compared to $15.2 million for the second quarter of 1998. “Enterprise benefited from stronger demand for its processing services and improved margins in its propylene fractionation and butane isomerization businesses,” Andras said. “For the quarter, propylene fractionation margin was up 159%, and butane isomerization margin was up 14% compared to the same period in 1998.

“While NGL fractionation volumes were lower during the second quarter, we fully expect that over the next six to 12 months, we will be able to replace these volumes with a combination of domestic and internationally sourced NGLs.”

For the first six months of 1999, operating margin from NGL fractionation was $1.5 million as compared to $1.5 million for the same period in 1998. For the first six months, NGL fractionation volume averaged 158,000 b/d in 1999 compared to 206,000 b/d in 1998.

Joe Fisher, Houston

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