El Paso acquisition to create coast to coast gas system

• The Combined El Paso-Tenneco's Pipeline System [31096 bytes]

El Paso Energy Corp.'s acquisition last month of Tenneco Energy, Houston, marks another megamerger in the evolution of U.S. gas and power markets.

The combination will create the only pipeline system in the U.S. capable of shipping natural gas to the East or West coasts.

The deal, worth an estimated $4 billion when concluded later this year, will create the third largest interstate gas pipeline system in the U.S. Combined assets will total about $8 billion.

The transaction has been approved by El Paso and Tenneco boards of directors. Conclusion of the deal hinges on receipt of tax rulings and opinions declaring the spinoffs and subsequent merger tax-free, completion of a debt realignment by Tenneco, government approvals, and approval of Tenneco shareholders.

William A. Wise, El Paso Energy chairman, president, and chief executive officer, described the combination of the two gas pipeline companies as a natural fit.

"The two companies complement each other geographically and operationally, serving markets from Bakersfield to Boston and extending to all major gas producing basins and consuming markets," Wise said.

"In addition, the combination creates a larger critical mass in our nonregulated operations, with high gas gathering, processing, and marketing volumes and an expanded set of nonregulated growth opportunities."

Tenneco Energy parent company, Tenneco Inc., disclosed plans to spin off its Newport News Shipbuilding unit and either spin off or sell its energy division.

Tenneco Chairman Dana Mead said his company chose to sell the energy unit because a sale would create $1 billion more value for shareholders.

Noting that there were many bids for Tenneco Energy, Mead said Tenneco's board of directors in the end was asked to approve either of two bids. Directors settled on the El Paso offer in part because of the geographic links of the two systems.

Mead would not disclose the other bidder.

Combined profile

A combined El Paso-Tenneco gas pipeline system in the U.S. in first quarter 1996 would have handled about 23 bcfd.

Together, El Paso and Tenneco interstate pipelines shipped 11.2 bcfd of gas, second only to volumes of 12.1 bcfd carried by the interstate pipeline system created by the recent merger of Williams Cos. Inc., Tulsa, and Transco Energy Co., Houston.

Combined gas volumes handled in the same time by El Paso and Tenneco intrastate and gathering pipelines amounted to 4.6 bcfd, again second to combined Williams-Transco gathering and intrastate pipeline systems, which handled about 6.4 bcfd.

Tenneco Energy contributes to the merger interstate pipelines that in first quarter 1996 shipped about 7.5 bcfd of gas to customers in 20 U.S. states, mostly in the Midwest and East.

Tenneco Energy's intrastate and onshore and offshore gas gathering pipelines handled combined volumes of as much as 2.5 bcfd.

In addition, El Paso acquires gas and power assets in Australia, Europe, Latin America, and the Pacific Rim.

El Paso Energy in first quarter 1996 transported about 3.7 bcfd of gas on an interstate pipeline system that includes one of the largest main lines in the U.S. The company also operates a 7,700 mile gas gathering system connected to more than 10,000 wells in the San Juan, Anadarko, and Permian basins, East Texas, and North Louisiana. El Paso's gathering volumes amount to 1.9 bcfd, of which it processes 650 MMcfd.

In addition, El Paso Energy Marketing is one of the top 10 U.S. gas and power marketers with sales volumes averaging 3.3 bcfd.

El Paso's obligations

To acquire Tenneco's pipeline and energy assets, El Paso agreed to: