Spectra Energy Partners LP is expanding its reach into the Fayetteville Shale and Arkoma Basin under an agreement announced Wednesday to acquire for $300 million cash Ozark Gas Transmission LP and various assets from Atlas Pipeline Partners LP (APL).
The agreement with APL would give the Spectra Energy Corp. partnership all of the ownership interests in NOARK Pipeline System LLP. The primary asset is Ozark, a 565-mile regulated interstate natural gas pipeline system that extends from southeast Oklahoma through Arkansas into southeast Missouri.
The Ozark system interconnects to several interstate pipelines, including Spectra’s Texas Eastern Transmission, linking gas supplies in the Fayetteville Shale and Arkoma Basin to Midwest and Northeast markets. Ozark Gas Gathering LLC, a 365-mile, fee-based gathering system located in eastern Oklahoma and western Arkansas, also is part of the agreement.
Spectra Energy Partners CEO Greg Rizzo said the assets would “significantly expand our asset base into this important supply region” and would be immediately accretive for the partnership’s unitholders.
NOARK generated around $46 million in earnings last year. Based on the expected increase in cash flow resulting from the acquisition, the partnership has recommended that the quarterly cash distribution per limited partnership unit be increased by 1 cent beginning in the first full quarter following the transaction closing. This ongoing increase would be “over and above” any increase related to growth from current assets, the partnership said. Long-term financing for the transaction is to be a combination of debt and equity; pending long- term financing, the company expects to use an existing credit facility and a bridge loan from Spectra Energy Corp.
“This financing approach retains more than sufficient liquidity to fund projects currently in execution into 2010, while maintaining our strong balance sheet and investment-grade credit metrics,” said Rizzo.
Earlier this month APL announced that it had formed a joint venture (JV) with Williams in the Marcellus Shale (see Daily GPI, April 2). Under the JV, Williams would contribute funds to help Atlas trim its debt in exchange for a 51% piece of the pipeline’s existing Appalachian Basin gathering system, which includes 1,800 miles of intrastate gathering lines serving 6,900 wells.
“With this sale and the previously announced Williams transaction, we will be paying down approximately $400 million of debt,” said APL CEO Gene Dubay. “We continue to work on other transactions, which should generate additional cash and further delever our company. Concurrently, we are focusing on APL’s core strengths which, in our opinion, will make the new, leaner APL a stronger provider of gathering and processing services in the Midcontinent and in Appalachia, where our new alliance with Williams will allow us to accelerate our Marcellus initiatives.”
The transaction with Spectra is expected to close by the end of June. Wachovia Securities acted as Spectra’s financial adviser; UBS Investment Bank was Atlas Pipeline’s adviser.
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