ONEOK Inc. is building up its midstream presence by agreeing toacquire all the Oklahoma midstream gas gathering and processingassets of Koch Midstream Enterprises for $285 million in cash.

The assets include eight gas processing plants and about 3,250miles of gathering pipeline connected to 1,460 gas wells inOklahoma. Total capacity of the plants is 515 MMcf/d. Thetransaction is subject to approval by regulators and the boards ofboth companies.

David Kyle, president of Tulsa, OK-based ONEOK, said, “Theseassets are located in an area where ONEOK owns significant naturalgas production and development acreage. This will enable thecompany to continue our strategic objective of maximizing values inall of our non-regulated natural gas operations. We have hadpartial ownership of some of these assets before, but recentnatural gas reserve acquisitions and, more importantly, theopportunity to own gathering systems upstream of the plants willprovide greater opportunity in a highly competitive marketplace. Wewill be focusing on improving the utilization of these assets tomaximize their future value.”

Also last week, ONEOK formed a strategic alliance with Midland,TX-based Costilla Energy Inc. to capitalize on properties Costillaplans to acquire from Pioneer Natural Resources Co. as well asother potential transactions. ONEOK will participate in Costilla’spreviously announced $335 million acquisition of Texas oil and gasproperties from Pioneer (assuming it is successful) through anequity investment in Costilla preferred stock.

ONEOK’s level of participation will be $100 million, $35 millionin properties and $65 million in equity. ONEOK will have the optionto participate with Costilla in potential future productiontransactions in the Midcontinent. Specific terms of the agreementwere not announced pending approval by the companies’ boards ofdirectors.

“ONEOK’s investment in Costilla forms the financial cornerstonefor our acquisition from Pioneer,” said Mike Grella, CostillaEnergy CEO. “Just as importantly, this transaction complements ourexploration expertise with ONEOK’s significant marketing anddistribution strengths.” The Pioneer deal should close March 31.

In a move to cut debt and costs by reducing its propertyinventory, Dallas-based Pioneer last September agreed to sellcertain oil and gas properties to Costilla. for $410 million. Thesale price has since been renegotiated to $335 million. The saleproperties represent about 425 domestic fields, primarily in Texas.

Joe Fisher, Houston

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