Oneok Inc. announced Friday it has successfully completed the purchase of the natural gas liquids (NGL) businesses owned by several Koch companies for approximately $1.35 billion.
“The acquisition is consistent with our growth strategy and is a perfect fit with our existing businesses,” said David Kyle, Oneok’s CEO. “It adds a new segment to our operations, giving us the ability to create additional value.”
The businesses acquired from the Koch companies give Oneok an NGL system that connects much of the NGL supply located in Oklahoma, the Texas Panhandle and Kansas with the two key market centers in Conway, KS, and Mont Belvieu, TX. The company first announced its intention to purchase the NGL assets in early May (see Daily GPI, May 10).
The purchase includes Koch Hydrocarbon, LP’s and Koch Underground Storage Company’s entire mid-continent NGL business that provides NGL gathering, fractionation, storage and marketing services for processors and other parties in Oklahoma, Kansas and Texas, including 100% ownership in two fractionators in Medford, OK, and Hutchinson, KS, with a combined capacity of 240,000 bbl/d; a 10% interest in a 110,000 bbl/d fractionator in Conway; two underground NGL storage facilities; and a 9,000 bbl/d isomerization facility.
Also included in the transaction are KPL NGL Pipeline, LP’s NGL pipeline distribution systems — approximately 1,800 miles of interstate NGL distribution pipelines that connect the Conway and Mont Belvieu market centers; and approximately 2,600 miles of NGL gathering lines. Some of the gathering lines and the NGL distribution lines are regulated by the FERC and receive tariff payments for transporting raw NGLs and products. The business also receives income from its 50% interest in the 200-mile, FERC- regulated gathering pipeline owned by Chisholm Pipeline Co.
As part of the transaction, Oneok also acquired MBFF, LP, which owns an 80% interest in the 160,000 bbl/d fractionator at Mont Belvieu, known as MB1. More than 90% of the EBITDA from this facility is generated by fee-based contracts. Oneok also acquired Koch VESCO Holdings, LLC, an entity that owns a 10.2% interest in Venice Energy Services Company, LLC (VESCO), and owns a gas-processing complex near Venice, LA. The VESCO facility currently processes an average of 800 MMcf/d of natural gas and provides gas gathering, processing, fractionation, storage and distribution services to offshore Gulf of Mexico gas producers.
As a result of this acquisition, Oneok will form a new operating segment, called “Natural Gas Liquids.” It will consist of the company’s existing NGL marketing business, currently part of the Gathering and Processing segment, and the businesses acquired from the Koch companies, excluding those assets regulated by the Federal Energy Regulatory Commission (FERC), which will be transferred to the company’s Transportation and Storage segment. VESCO Holdings, also acquired as part of the Koch transaction, will be transferred to the Gathering and Processing segment. Natural Gas Liquids will be led by Senior Vice President Terry Spencer who will report to John W. Gibson, president, Oneok Energy Companies.
Of the 207 current Koch company employees, 191 will join Oneok as part of the transaction. The majority of the employees will remain in field locations, with commercial and accounting activities being transferred to Tulsa from Wichita, KS.
As previously announced, the overall transaction is expected to generate approximately $135-$145 million of primarily fee-based earnings before interest, taxes, depreciation and amortization (EBITDA) in 2006, when the benefits of renegotiated contracts and additional contracted volumes are fully realized.
Initial financing of the transaction will be through a $1-billion bridge loan with the remainder financed under the company’s commercial paper program or borrowings under its existing $1-billion, five-year credit agreement. Permanent financing of the acquisition is expected to come from a combination of available cash, issuance of long-term debt and proceeds from the settlement of the company’s equity units in February 2006. The company may also use proceeds from the sale of less strategic assets.
Oneok also announced an extensive management shift to accommodate the addition of the new division.
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