Buffalo, NY-based National Fuel Gas Co. said late Thursday that it has entered into an agreement to acquire the Empire State Pipeline from Duke Energy’ DEGT (Duke Energy Gas Transmission) subsidiary for approximately $240 million. The company reported that a stock purchase agreement regarding the transaction was also executed Thursday.

The Empire pipe is a 24-inch diameter natural gas pipeline that originates at the United States/Canada border at the Chippawa Channel of the Niagara River, and extends easterly 157 miles from Buffalo, NY to near Syracuse, NY. The pipeline, which was constructed in 1992 and has been in service since 1993, has a design capacity of 525 MMcf/d. Empire delivers gas supplies to major industrial companies, power producers and utilities, including National Fuel’s utility segment. National Fuel added that Empire currently has firm contracts for almost all of its capacity.

“Empire serves as a critical link in delivering natural gas supplies from Canada to the United States,” said Philip C. Ackerman, CEO of National Fuel. “As the demand for energy increases along the East Coast, this acquisition allows National Fuel to be better positioned to bring gas supplies to these growing markets.

“National Fuel is constantly seeking opportunities to make investments that complement its existing assets and Empire proved to be an attractive opportunity, especially since the pipeline originates within our existing service area,” Ackerman added. “This acquisition is consistent with our long-term strategy of buying and building real assets, and in particular, enhancing our energy supply and delivery infrastructure.”

Duke Energy obtained the Empire pipeline in its $8 billion acquisition of Westcoast Energy in March 2002 (see Daily GPI, Sept. 21, 2001). The New York intrastate pipeline has been managed by DEGT since that time.

“As an active manager of a portfolio of energy assets, Duke Energy continually looks at our businesses and assets with an eye on maximizing shareholder value,” said Robert B. Evans, CEO of DEGT. “Once the sale is completed, we’ll continue to have a solid pipeline capacity position in the Northeast with our Texas Eastern, Algonquin and Maritimes & Northeast systems expanding to meet growing demand.”

The $240 million transaction value includes approximately $60 million in assumed debt. Following the stock purchase agreement, National Fuel said it will acquire all of the outstanding shares of Empire State Pipeline Co. Inc. and St. Clair Pipeline Co. Inc., each of which owns a 50% interest in Empire. Pending regulatory approvals and satisfaction of other conditions, the companies said they expect to close the deal in December 2002 or during the first quarter of 2003.

In order to finance the transaction, National Fuel indicated that the initial financing for the acquisition will be arranged with short-term debt and then anticipates its permanent financing will be a combination of long-term debt and equity. Due to the acquisition, National Fuel said it expects a near-term 2-3% dilutive effect to earnings per share. “There are opportunities for growth on this system,” Ackerman said. “We believe additional interconnects to other pipelines, utilities and storage facilities will increase the value of this asset and offset the initial impact to earnings.”

National Fuel has $3.4 billion in assets in its utility, pipeline and storage, exploration and production, international, energy marketing and timber segments.

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