Now turning its acquisitive eye to Kansas, Midcoast Energy Resources Inc. plans to acquire Kansas Pipeline Co. (KPC), MarGasCo Partnership (MarGasCo) and other related assets.

The $190 million deal includes the Kansas Pipeline system, which provides gas service to the Wichita and Kansas City metropolitan markets. The addition of the KPC system represents a 41% increase in the total miles of pipeline owned by Midcoast. The deal is the latest in a string of buys over the last 18 months.

“This acquisition enables us to greatly expand our operational scope, customer base and transportation volumes,” said Midcoast CEO Dan C. Tutcher. “The purchase of KPC will firmly establish Midcoast’s presence among regional interstate pipeline companies and nearly doubles our existing pipeline asset base of approximately $200 million. The combination of KPC and Midcoast creates opportunities for significant growth potential in our core Midwest and Gulf Coast operating areas. Also, the long-term transportation contracts associated with KPC further strengthen the stability of our cash flow stream far into the future.”

After this transaction, Midcoast will own nearly 1,800 miles of interstate pipeline, including the KPC, Midcoast Interstate Transmission and Mid Louisiana Gas systems. In addition, with 2,000 miles of unregulated gathering and end-user pipelines, total pipeline mileage will increase to 3,800 miles. This is a 530% increase from 600 miles of pipeline owned in 1996.

KPC owns and operates a 1,120-mile interstate gas pipeline from Oklahoma and western Kansas to the metropolitan Wichita and Kansas City markets. It is one of three pipeline systems currently capable of delivering gas into the Kansas City metropolitan market. Presently, more than 98% of the transportation revenue from the KPC system is derived from ten-year or longer agreements.

The KPC system includes three compressor stations with a 14,680 total horsepower and has a capacity of approximately 160 MMcf/d. KPC has supply interconnections with the Transok, Panhandle Eastern and ANR pipeline systems, allowing distribution from the Anadarko and Arkoma basins, as well as the western Kansas and Oklahoma panhandle producing regions.

KPC’s two primary customers are Kansas Gas Service (KGS) and Missouri Gas Energy (MGE), both of which are served under long-term transportation contracts. KGS, a division of Oneok Inc., is the local distribution company in Kansas for Kansas City, Wichita, as well as a number of other municipalities, while MGE, a division of Southern Union Co., is the LDC for Kansas City, Mo.

MarGasCo is a non-regulated company, which primarily markets natural gas off the KPC interstate pipeline system. Currently MarGasCo markets gas to over 125 end-use customers in Kansas, Missouri and Oklahoma.

Under the terms of the agreement, Midcoast will pay cash consideration of approximately $190 million, which includes repayment of $68.4 million in existing KPC senior secured notes and other indebtedness, and an approximately $8.5 million prepayment penalty in connection with the early repayment of the debt. A one-time charge in connection with the prepayment penalty is anticipated in the fourth quarter of 1999. Midcoast will finance this transaction through a new $265 million syndicated commercial bank facility. Closing is expected on November 9, 1999

Houston-based Midcoast transports, gathers, processes and markets gas and other petroleum products through more than 75 company-owned pipelines covering 2,700 miles in nine states, the Gulf of Mexico and Canada.

In January Midcoast did two deals worth a combined $4.55 million to grow its Texas-Louisiana pipeline system (see NGI Jan. 11). Midcoast bought the Mendota gathering pipeline and processing plant in Roberts County, TX, from Seagull Energy Corp. for $3.75 million in cash. In a separate deal, it bought the Tynan system in Bee and Live Oak counties, TX, from Texas Southeastern Gas Gathering Co. for $0.8 million in cash. In March Midcoast Canada Operating Corp. bought the Calmar gas treating plant and gathering system in Alberta from Probe Exploration Inc. for C$20 million (US$13.2 million) (see NGI, March 29).

In July 1998 Midcoast announced plans to buy the sprawling Anadarko pipeline system from El Paso Field Services for $35 million (see NGI, Aug. 3, 1998). During the same month subsidiary Mid Louisiana Gas Transmission bought all of the stock in the Creole Gas Pipeline in southern Louisiana from El Paso Energy for an undisclosed amount (see NGI, July 6, 1998). And in May 1998, Midcoast announced plans to buy two short pipeline systems from Koch Gateway to serve new demand for marketing and transportation in the Baton Rouge, LA, area (See NGI, May 18, 1998).

Joe Fisher, Houston

©Copyright 1999 Intelligence Press, Inc. All rights reserved.The preceding news report may not be republished or redistributed in wholeor in part without prior written consent of Intelligence Press, Inc.