Midcoast Energy Resources Inc. plans to acquire Kansas PipelineCo. (KPC), MarGasCo Partnership (MarGasCo) and other relatedentities. The $190 million deal includes the Kansas Pipelinesystem, which provides gas service to the Wichita and Kansas Citymetropolitan markets. The addition of the KPC system represents a41% increase in the total miles of pipeline owned by Midcoast.

“This acquisition enables us to greatly expand our operationalscope, customer base and transportation volumes,” said Midcoast CEODan C. Tutcher. “The purchase of KPC will firmly establishMidcoast’s presence among regional interstate pipeline companiesand nearly doubles our existing pipeline asset base ofapproximately $200 million. The combination of KPC and Midcoastcreates opportunities for significant growth potential in our coreMidwest and Gulf Coast operating areas. Also, the long-termtransportation contracts associated with KPC further strengthen thestability of our cash flow stream far into the future.”

After this transaction, Midcoast will own nearly 1,800 miles ofinterstate pipeline, including the KPC, Midcoast InterstateTransmission and Mid Louisiana Gas systems. In addition, with 2,000miles of unregulated gathering and end-user pipelines, totalpipeline 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 fromOklahoma and western Kansas to the metropolitan Wichita and KansasCity markets. It is one of three pipeline systems currently capableof delivering gas into the Kansas City metropolitan market.Presently, more than 98% of the transportation revenue from the KPCsystem is derived from ten-year or longer agreements.

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

KPC’s two primary customers are Kansas Gas Service (KGS) andMissouri Gas Energy (MGE), both of which are served under long-termtransportation contracts. KGS, a division of Oneok Inc., is thelocal distribution company in Kansas for Kansas City, Wichita, aswell as a number of other municipalities, while MGE, a division ofSouthern Union Co., is the LDC for Kansas City, Mo.

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

Under the terms of the agreement, Midcoast will pay cashconsideration of approximately $190 million, which includesrepayment of $68.4 million in existing KPC senior secured notes andother indebtedness, and an approximately $8.5 million prepaymentpenalty in connection with the early repayment of the debt. Aone-time charge in connection with the prepayment penalty isanticipated in the fourth quarter of 1999. Midcoast will financethis transaction through a new $265 million syndicated commercialbank facility. Closing is expected on November 9, 1999

Midcoast is a Houston-based pipeline company with regionaloffices in Texas, Alabama, Louisiana, Mississippi and Alberta,Canada. The company transports, gathers, processes and marketsgasand other petroleum products through more than 75 company-ownedpipelines covering 2,700 miles in nine states, the Gulf of Mexicoand Canada.

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