By OGJ editors
HOUSTON, July 29 -- MidAmerican Energy Holdings Co. reached a definitive agreement with Houston's Dynegy Inc. to acquire Omaha, Neb.-based Northern Natural Gas Co. (NNG) for $928 million and $950 million in assumed debt.
"We are extremely pleased to be acquiring Northern Natural Gas," said David L. Sokol, MidAmerican chairman and CEO." The sale of the 16,600 mile interstate pipeline is expected to close next month. NNG also has three natural gas storage facilities with total capacity of 59 bcf and two LNG peaking units.
The purchase of the NNG system follows close on the heels of Des Moines-based MidAmerican's $960 million purchase of Kern River Gas Transmission Co. last March (OGJ Online, Mar. 8, 2002). Sokol called the purchase of NNG "another step forward in (MidAmerican's) strategy of making sound investments in the US energy infrastructure." The NNG system transports 4.3 bcfd of natural gas from the Permian basin in Texas to the Upper Midwest, where it serves 70 utility companies and other industrial customers with transportation and storage services.
"Northern Natural Gas is a well-managed company with excellent assets," said Greg Abel, president of MidAmerican.
Shortly following MidAmerican's announcement, Standard & Poor's Ratings Services placed NNG's B+ ratings on credit watch with positive implications. Prior to the announcment, NNG had been on credit watch with negative implications. S&P credit analyst John Kennedy said that he expected NNG's ratings would be "in line with the higher credit ratings of MidAmerican Energy, on successful completion of the transaction."
Kennedy added, "The above-average business profile on Northern Natural reflects the moderate amount of direct pipeline competition that the company faces in its service area. The Upper Midwest is a particularly cold region that uses a lot of natural gas, and Northern Natural's customers (mainly gas utilities and municipalities) have few options."
Also following the announcement, in a separate statement, Kennedy noted that the sale of NNG would have "no immediate effect" on Dynegy's credit quality. "The sale. . .helps to relieve some near-term liquidity issues," Kennedy said, "since it provides a source of cash and relieves $450 million in maturities coming due in November 2002."
The sale does raise some concerns, however, about the repayment of a $1.5 billion obligation to ChevronTexaco Corp., which is a major stockholder in the ailing Dynegy (OGJ, July 1, 2002, p. 30). Dynegy borrowed the money to purchace NNG from Enron Corp. in late 2001.
"S&P's analysis determines that Dynegy will be challenged to preserve an adequate liquidity position to meet its obligations over the next 18 months," Kennedy said.