El Paso to make big midstream acquisition
In a move that will make it the second biggest US midstream operator, a unit of El Paso Energy Corp. is acquiring the Texas intrastate natural gas and NGL operations of PG&E Corp., San Francisco. The $840 million deal includes assumption of $561 million in debt.
The acquisition involves PG&E subsidiaries PG&E Gas Transmission Texas Corp. and PG&E Gas Transmission Teco Inc. It includes extensive intrastate gas gathering, processing, transmission, and storage businesses that serve all major Texas metropolitan areas, the state's largest industrial load centers, and numerous gas trading hubs.
Under terms of the agreement, El Paso will acquire 8,500 miles of gas transmission pipelines that move 2.8 bcfd, nine gas plants that currently process 1.5 bcfd, a 7.2 bcf gas storage field, and "significant" NGL pipelines and fractionation facilities held by the two PG&E units.
"We have sought these assets for some time, and they are an excellent fit for us, especially in light of our proposed Coastal merger," said Robert G. Phillips, president of the El Paso Field Services Co. subsidiary.
In January, El Paso Energy agreed to merge with Coastal Corp. in a $16 billion deal that included about $6 billion of assumed debt and preferred equity (OGJ, Jan. 24, 1999, p. 23).
The PG&E Gas acquisition "represents compelling value and will be immediately accretive to El Paso's earnings per share," Phillips said. "Many of the acquired assets will be ideal candidates for contribution to our affiliated master limited partnership, El Paso Energy Partners LP."
The parent El Paso Energy already owns North America's biggest gas pipeline system in terms of both throughput and miles of pipeline.
PG&E Gas Transmission Texas is a leading gas aggregator and processor in South Texas, a region that produces almost 16% of US natural gas supplies. That system connects with El Paso Energy affiliates El Paso Natural Gas Co., Tennessee Gas Pipeline Co. and Channel Industries Gas, officials said.
El Paso Energy plans to bridge-finance the $330 million consideration with a term loan that may be refinanced later this year with some form of nonrecourse structure, analysts said.
Moody's Investors Service confirmed the securities of El Paso Energy and its subsidiaries following announcement of the acquisition agreement. But it is reviewing PG&E Gas Transmission Texas' senior unsecured notes for possible downgrade.
The sale is expected to close by mid-year, subject to the usual reviews and third-party consents.
