By OGJ editors
HOUSTON, Nov. 3 -- Kinder Morgan Energy Partners LP has inked two purchase and sale agreements with Marathon Oil Corp. unit Marathon Oil Co. for KMEP to acquire Marathon's 42.45% working interest in its Yates oil field unit and also Marathon's 100% interest in the Yates Gathering System (YGS) in the Permian basin of West Texas for a total $225.5 million.
KMEP had been negotiating with Marathon to buy its Yates oil field interest since midyear (OGJ Online, June 23, 2003); KMEP already holds 7.5% interest in Yates, which has largest proven onshore reserves in the Lower 48. Yates field is "an ideal asset for CO2 flooding," KMEP said.
The companies expect to close the transaction later this month. After closing the deal, Marathon said the sale will result in a cash benefit of about $390 million "due to the company's tax basis in the underlying assets."
Deal details
YGS comprises about 87 miles of 2-12-in. pipeline that gathers oil production and transports it to central tank batteries for shipment to markets.
Yates field was discovered in 1926 and currently has more than 360 active producing wells. To date, Yates field has produced nearly 1.5 billion bbl of oil and covers a unitized area of about 41 sq miles. Current production from the field is about 20,000 b/d of oil.
Marathon's net share of current Yates production is about 7,500 b/d and its proved reserves associated with the Yates field total 175 million boe, Marathon reported.
This transaction follows actions taken earlier this year by Marathon and KMEP when the companies dissolved MKM Partners LP (and a related company, MKM Holdings LLC), and Kinder Morgan unit, Kinder Morgan CO2 Co. LP, acquired MKM Partners' 12.75% in the Scurry Area Canyon Reef Operators Committee (SACROC) unit.
Separately, Marathon and KMEP signed a letter agreement under which KMEP would acquire Marathon's indirect, wholly owned subsidiary Marathon CO2 Transportation Co., which owns a 65% interest in The Pecos CO2 Pipeline Co., for about $2 million. The sale of the unit also is expected to close this month.
Future plans
"We are excited about this acquisition, which fits perfectly with our existing CO2 assets in the Permian basin and is expected to be substantially accretive to KMP unitholders," said Chairman and CEO Richard D. Kinder. "By applying our CO2 expertise to the prolific Yates Field, we expect to add decades to the production life of the unit.
By combining horizontal drilling with its experience in CO2 flooding, KMEP and the other Yates field owners, including ChevronTexaco Corp., Occidental Petroleum Co., and ExxonMobil Corp., are planning to maintain a relatively steady production profile over the next several years, KMEP said.
"Unlike SACROC, which uses CO2 and water to drive the oil to the producing wells, the owners of Yates field anticipate replacing nitrogen with CO2 injection to enhance the gravity drainage process, as well as maintain reservoir pressure," KMEP said. "The difference in geology and reservoir mechanics of the two fields means that substantially less capital will be needed to develop the reserves at Yates than what is required at SACROC," the company said.
