Koch Industries Inc., Wichita, last week disclosed it has purchased United Gas Pipe Line Co. (UGPL) in a deal marking Koch's entry into regulated U.S. interstate gas transmission.
Details of the purchase, including what Koch paid for UGPL's 9,271 mile interstate system, were not disclosed. But UGPL filings with the Federal Energy Regulatory Commission have pegged the value of its pipeline system hardware at more than $1.1 billion.
The system serves 467 communities and has 120 connections with other major pipelines that serve the Southeast, Midwest, and East Coast with sales of about $370 million/year.
Koch is involved in virtually all other phases of oil and gas operations.
The company through subsidiaries produces, buys, and sells 400-500 MMcfd of gas in the U.S. and Canada, with most sales to commercial and industrial customers.
It also owns and operates more than 27,000 miles of gas liquids, crude oil, hydrocarbon products, and anhydrous ammonia pipelines in North America, company officials estimated. That total includes about 2,600 miles of onshore gas gathering pipelines and 12 offshore gas gathering systems in the Gulf of Mexico, as well as oil pipeline mileage in southern Alberta and Saskatchewan.
FERC filings show Koch Pipelines Inc. operates 3,845 miles of regulated pipeline in the U.S., including 914 miles of crude oil gathering line, 1,105 miles of oil transportation line, and 1,826 miles of products pipeline.
BACK TO PROFITABILITY
UGPL reported a $12 million net loss on $275.2 million operating revenues for 1991.
Koch officials said increasing throughput and maximizing return on operating costs are keys to restoring profitability to the UGPL system. The pipeline in some cases could add value to existing Koch oil and gas products and services, they said.
"This acquisition creates attractive new opportunities for Koch to gather and market gas throughout the U.S. Gulf Coast and expanding markets in the Southwest," said Charles Koch, Koch Industries chairman and chief executive officer. "The expansion of Koch's gas business also will allow access to markets in the Northeast and Midwest through cooperative relationships with other interstate pipelines."
For UGPL parent company United Gas Holding Corp., Houston, the transaction with Koch completes a financial restructuring that began in 1989.
Said Alvin Shoemaker, United Gas Holding chairman: "We are very pleased about our arrangement with Koch Industries since Koch provides the financial strength (needed) to implement UGPL's business strategy."
THE DEAL'S ATTRACTION
Koch plans to incorporate former UGPL facilities into its hydrocarbons group, which produces, purchases, processes, transports, stores, trades, and markets gas and natural gas liquids (NGL).
Koch Hydrocarbon Co. Pres. Chris McCampbell said the company had been studying the U.S. regulated interstate gas transportation business for more than 2 years before the UGPL transaction. The company had been evaluating UGPL's pipeline system since last January.
McCampbell said Koch's experience in nonregulated gas businesses and operating other types of pipelines were key factors in the decision to proceed with the purchase.
"All we really had to do was come to understand the interstate gas transportation business and then pick out an attractive candidate," he said of the acquisition.
Koch was attracted to the UGPL system because of its surplus capacity. In 1991, UGPL sold more than 24.5 bcf of system gas and transported another 539.7 bcf for others.
McCampbell could not say how much Koch expects to increase throughput on the system. The company's volumes of marketed gas are not large enough to fill the surplus capacity, but it hopes to increase throughput wherever it has an advantage that creates value.
Last week following the acquisition, Koch was sizing up opportunities to better employ the new asset.
OTHER GAS OPERATIONS
Company officials declined to disclose production volumes for Koch's exploration subsidiary.
But in 1990 Koch-operated wells in the Gulf of Mexico produced 18.75 bcf of gas and 112,308 bbl of condensate, federal figures show. The company also produces gas off California, in North Dakota, and in the Piceance and San Juan basins.
Koch Hydrocarbon operates six gas processing plants in five states with combined capacity of 210 MMcfd, the latest Oil & Gas Journal gas processing survey shows (OGJ, June 20, p. 64). Combined Koch gas processing plant throughput in 1991 averaged about 80 MMcfd, while combined production of major products averaged 122,600 gal/day of propylene, 90,600 gal/day of raw NGL, 63,400 gal/day of normal butane, and 11,000 gal/day of natural gasoline.
The company's gas processing plant near Harmony, Miss., is connected to the UGPL system.
"That's a coincidence. It has nothing to do with this acquisition," McCampbell said.
He said former NGPL gas storage installations at Jackson, Miss., and Bistineau, La., could afford opportunities for Koch to generate more value from its existing gas related operations. Combined capacity of the two sites is reported as 129 bcf of gas, including 65.5 bcf of cushion gas. UGPL in 1991 injected a combined 35.8 bcf of gas into storage at the locations and withdrew 45.3 bcf.
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