Norway's Statoil ASA has gained access into the US LNG market through the purchase of El Paso Merchant Energy LP's capacity rights for LNG from the Snøhvit project for $210 million. For El Paso, the deal marks what could be the start of a modified strategy for its planned LNG projects and capacity ownership.
In other company news, pipeline deals dominated recent acquisition activity between companies:
•ONGC Videsh Ltd. (OVL), a unit of Indian state oil firm Oil & Natural Gas Corp., entered into a definitive agreement Oct. 30 to acquire Talisman Energy Inc.'s indirectly held interest in the Greater Nile Petroleum Operating Co. (GNPOC) in Sudan for $1.2 billion (Can.).
•Calgary-based Enbridge Inc. has completed the acquisition of 9.6% interest in Alliance Pipeline from Williams Cos. Inc. for $179 million (Can.).
•Calgary-based AltaGas Services Inc. entered into an agreement to acquire EnCana Corp.'s interests in two natural gas pipelines in Suffield, Alta., and nine natural gas gathering and processing systems comprising the Wabasca system in northeastern Alberta for $115 million (Can.).
•Houston-based Kinder Morgan Inc. has signed a definitive agreement with an affiliate of Questar Corp., Salt Lake City, to purchase its 50% interest in TransColorado Gas Transmission Co. for $105.5 million.
Statoil's LNG deal
Based on its agreement with El Paso, Statoil will assume a 17-year primary term agreement with the Snøhvit consortium, beginning in 2006, to provide delivery of 1.8 million tonnes/year of LNG bound for various delivery points. Production from the Statoil-operated Snøhvit field is slated to start in 2006.
In a related transaction, Statoil unit Statoil North America Inc. will assume Houston-based El Paso's capacity at the Cove Point, Md., LNG regasification terminal, an amount equal to "about one-third of the facility's total capacity," according to El Paso.
"Both of these transactions are in line with our LNG strategy," said Statoil CEO Olav Fjell. "Access to the high-value gas markets on the US East Coast represents an attractive opportunity for Statoil."
In addition, Statoil reported that it has been invited to bid for interest in the acreage being offered by Petroleos de Venezuela SA in the Plataforma Deltana (Deltan platform) area off Venezuela.
The area contains some undeveloped gas discoveries, including the world-class Loran field. Gas from the area could be used to feed either an Atlantic LNG expansion or a Venezuelan LNG Project (OGJ Online, Aug. 29, 2002).
Changing El Paso strategy
"The whole transaction was initiated by Statoil, and we had not contemplated a sale of the assets prior to their overtures," El Paso Global Petroleum and LNG Group Pres. Greg G. Jenkins told OGJ.
The deal, he said, was driven by two factors: "We were in a position to recognize full and complete value for the assets, and (the deal) allows us to execute more broadly on our strategyUand deploy that capital into the terminals we're developing."
Jenkins said that, within the LNG marketplace, there is "tremendous value" associated with the company's strategy and that it "imprints" a value on what they are doing.
"It adds momentum to our development projects of the terminals that we are pursuing around the country and internationally," he said. "Our basic agenda is to develop these terminals, make these physical assets happen to shape the landscape of the LNG business."
When asked if El Paso sees itself selling other similar contracts in the near future, Jenkins noted, "At this point, I don't see that happening," adding, "Our expectation is that we'll be completely focused on the implementation of our strategy at this point, which does not include the sale of any particular asset or contract." However, Jenkins noted that it would take offers, such as the one received from Statoil, very seriously.
"If another similar offer were presented to us, it would be our responsibility to take it seriously as well. But we're not signaling to the market in any way that we're interested in selling any other assets," he said.
The transaction helped El Paso provide "incremental confidence" for the company to pursue a broad-based partnership within the LNG business, Jenkins said.
"We have undertaken a process of discussions with companies that have expressed an interest to us—again, mostly unsolicited—to form a broad LNG partnership," he said, adding, "Having been able to reflect a concrete value on one element of our business has given us encouragement to pursue those broad partnership discussions."
The company said that it will continue to focus attention on the development of LNG terminals in North America, Europe, and Asia.
El Paso also has intentions to build an offshore LNG delivery system, dubbed EP Energy Bridge (OGJ Online, May 8, 2002), as well as plans to continue developing two land-based terminals: one in the Bahamas and another in Altamira, Mexico.
The capital associated with the planned projects will be dictated by how quickly they evolve, Jenkins said. "Today, our most advanced project is our first Energy Bridge project in the Gulf of Mexico."
Jenkins said that the company has already applied for its permit and is "moving rapidly" toward the terminal's installation.
He said El Paso is "quite close" to making final investment decisions on its land-based terminals and expects to make a commitment on them sometime in first quarter 2003. "It's just a function of which one moves more quickly as to how we allocate our capital," he said.
ONGC's GNPOC purchase
GNPOC consists of four blocks in the Muglad basin and a 1,500 km oil pipeline from the producing fields to Port Sudan on the Red Sea.
"We have consistently said that we liked our position in Sudan, the people, and the project," said Talisman's Pres. and CEO Jim Buckee, "But, we have also always said that we would sell at the right price."
Talisman acquired a 25% interest in GNPOC in October 1998 through the acquisition of Calgary-based Arakis Energy Inc. (OGJ, Aug. 24, 1998, Newsletter). Other consortium members in GNPOC are CNPC International (Nile) Ltd. 40%, Petronas Carigali Nile Ltd. 30%, and Sudapet Ltd. 5%. GNPOC's current gross production is 240,000 b/d of oil, Talisman said.
"Talisman's shares have continued to be discounted, based on perceived political risk in-country and in North America, to a degree that was unacceptable for 12% of our production," Buckee said.
"Shareholders have told me they were tired of continually having to monitor and analyze events relating to Sudan. We are encouraged by recent developments in Sudan, but had to weigh all possible outcomes against having a firm and fair offer, in hand, right now," he said, adding, "Selling our interest in the project resolves uncertainty about the future of this asset."
Buckee said that the company had received other proposals, but that it considered OVL's offer "to be the most attractive opportunity." On completion of the transaction, which is expected by yearend, Talisman expects to book an after-tax accounting gain of about $340 million (Can.), it said.
"Talisman intends to repurchase sufficient shares, to ensure at least 5% production per share growth on a comparable basis, with or without Sudan, for 2003 over 2002," Buckee noted.
Enbridge to buy Alliance stake
Tulsa-based Williams last month announced that it would sell its 14.6% ownership interest in the Canadian and US portions of the 1,900 mile Alliance pipeline system (OGJ Online, Oct. 2, 2002).
Fort Chicago Energy Partners LP (FCEP), another Alliance Pipeline interest holder, exercised its right of first refusal and picked up Williams's other 5% interest in the line, which extends from Fort St. John, BC, to Chicago.
Enbridge expects to acquire a 7.2% interest in Alliance from El Paso Corp. of Houston for $127 million (Can.). El Paso previously agreed to sell its 14.4% interest in the system, including its ownership in the Aux Sable natural gas liquids plant. Enbridge expects FCEP to acquire El Paso's remaining 7.2% interest in the line and NGL plant.
Following the close of the latest transaction, Alliance will be held by Enbridge and FCEP, each with 38.2%, and Duke Energy Corp., Charlotte, NC, with 23.6%.
The majority of the El Paso sale is expected to close by yearend, Enbridge said, adding that the remainder of the transaction is expected to close in early 2003.
El Paso said it would use sale proceeds to repay outstanding debt. "This transaction represents another important step in El Paso's plan to reduce debt and strengthen our balance sheet," said William A. Wise, El Paso chairman and CEO.
TransColorado deal
Kinder Morgan's acquisition of Questar's stake in the TransColorado system, which is expected to close before yearend, will give Kinder Morgan 100% ownership of the natural gas pipeline system and will settle all outstanding litigation between Kinder Morgan and Questar relating to the 300 MMcfd gas pipeline, Kinder Morgan said.
In 2001, Questar exercised a contractual right to put to an affiliate of Kinder Morgan its 50% ownership interest in the project. Following legal proceedings, a Colorado court in August issued a judgment upholding Questar's right to exercise the put option.
"We are pleased to resolve the litigation in a way that enables us to buy the remaining 50% of TransColorado at less than the original put price," said Richard D. Kinder, Kinder Morgan chairman and CEO. He noted that Kinder Morgan's current estimate of TransColorado's 2002 pretax cash flow is more than $22 million.
The TransColorado system extends 292 miles from the Piceance basin near the Greasewood Hub in Rio Blanco County, Colo., to the San Juan basin near Blanco, NM.
Questar said it would use proceeds from the sale to retire Questar Pipe- line's debt.
AltaGas's pipeline purchase
EnCana also entered into long-term transmission and gathering and processing agreements with AltaGas. The deal is expected to close before the end of this month.
The Suffield system transports natural gas produced on and around the Suffield military block to the Trans- Canada PipeLines Ltd. mainline at Burstall, Sask. Total throughput capacity of the two 200 MMcfd pipelines is 220 MMcfd of gas.
The south Suffield system is 147 km of 6-16-in. line. The north Suffield system is 96 km of 16-in. line. Both systems carry gas from 32 townships.
AltaGas will hold 100% ownership in seven of the Wabasco gathering and processing systems and a 50% ownership in the remaining two systems. The Wabasco system also has 898 km of gathering pipeline, more than 26,000 hp of compression, and 65 MMcfd of current gas throughput.