Northern Border Partners L.P. is moving quickly to scoop upMidwestern Gas Transmission from El Paso Corp. because it believesthe pipeline is destined to become strategically more important asan outlet for western Canadian gas and eventually Alaskan gas, aswell as a key supplier for generation plants in the Midwest.
“The time has come to see this thing [Midwestern] really blossomas a commercial activity,” said Robert Hill, vice president ofmarketing and business development for Northern Border Pipeline.”We have definitely a lot of aspirations and many deals that Ican’t discuss…..that are in negotiation.”
The market served by Midwestern “is replete with a number ofpower plant opportunities, other large end-use opportunities, evensome converted coal-fired generation plants….. And, of course,we’re also anxious to make sure we continue taking good care ofexisting LDCs along the Midwestern system,” said Northern BorderCEO Bill Cordes.
Cordes and Hill touted Midwestern’s future potential during ateleconference with analysts Tuesday that was called to discuss thepartnership’s potential acquisition of the pipeline from El Paso.Cordes said Northern Border Partners will pay about $100 millionfor Midwestern, making it the company’s fourth acquisition in justover 18 months. “We expect to fund this acquisition initially withdebt, but we would expect to replace about half of that debt” inthe near term, he told analysts.
Northern Border Partners hopes to close the transaction in midto late April after obtaining final approval from the Federal TradeCommission. The acquisition will be immediately accretive toearnings, adding 7-10 cents per share on a cash flow basis for thepartnership, Cordes said. Midwestern will contribute $12-$13million to earnings before interest, taxes and depreciation andamortization (EBITDA).
With its existing interconnection with Alliance Pipeline,Midwestern “will help to extend the availability of Canadian gasSouth and East,” Cordes said. “…[W]e also think thetransportation opportunities on the system will grow as Alaskan gashits that area later this decade.”
The 350-mile, 30-inch diameter Midwestern extends from Portland,TN, to Joliet, IL, where it connects with Northern Border Pipelineand Alliance Pipeline. The pipeline, which operatesbi-directionally, has a forward-haul capacity (northward toChicago) of 650 MMcf/d, and a backhaul capacity in the range of350-650 MMcf/d. Midwestern’s primary market is the growing Joliethub near Chicago, and its secondary markets are in Kentucky,southern Illinois and Indiana.
“We are taking ownership of Midwestern at a time when they dohave a significant quantity of forward-haul capacity undercontract,” noted Hill. He estimated that about 600 MMcf/d of thepipe’s forward-haul capacity currently is committed due to thenumber of new peaking and base-load facilities that have popped upin Midwestern’s market area. “We’ve had about 405 MMcf/d of recentactivity [added] on the commercial side” to Midwestern’s system inthe last couple of years, he said.
Hill conceded that a number of the contracts are of a “mid-termlife” nature, and are expected to expire around 2003. But thepipeline plans to aggressively pursue renewals. “We have certainlyfactored in our expectations [for] renewal and believe the pipewill remain substantially full at or above” the 600 MMcf level.
In the short term, “we do intend to concentrate on reallyworking hard at the value-added services…..things like park andride services [and] backhauls,” Cordes said. “We expect theinclusion of Midwestern into our pipeline family as being a goodopportunity for market access for the existing customers onMidwestern as well as [the] existing customers on Northern BorderPipeline.” The two pipelines share some of the same major customers— Peoples Gas Light & Coke, Nicor and Nipsco.
The “synegistic value [of] Northern Border and Midwestern…interms of developing a high-pressure header system in the Jolietarea, I think, is going to create a lot of new value for bothpipelines,” he noted.
Assuming the Midwestern transaction goes through, executives ofNorthern Border Partners said the company will have alreadyeclipsed its targeted acquisition budget for 2001. “…..[W]e saidour target was $200 million, so we’ve almost tripled that already.”But they assured analysts that the partnership has sufficientresources to continue to watch out for “good acquisition targets,”as well as develop the assets that have been acquired. But thepartnership warned analysts not to expect an acquisition of thismagnitude anytime soon.
Northern Plains Natural Gas Co., a general partner in NorthernBorder, will operate the Midwestern system after the sale iscompleted, Cordes said. He noted that 21 experienced fieldemployees will be transferred to Northern Plains as part of thedeal. The general office functions of Midwestern will be absorbedinto the Omaha, NE, headquarters of Northern Border.
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