Williams makes major Canadian midstream purchases

Tulsa-based integrated energy giant Williams has made two acquisitions of key Canadian NGL and gas processing assets. Williams agreed today to purchase TransCanada PipeLines Ltd.'s interests in the Cochrane, Redwater, Empress II, Empress V, and Younger NGL extraction plants and the West Stoddart gas processing plant. Separately, Williams reached an agreement to buy Dow Chemical Co.'s 32.5% interest in the Cochin NGL and ethylene pipeline system.

Aug 3rd, 2000


Anne Rhodes
OGJ Online

Tulsa-based integrated energy giant Williams has made two acquisitions of key Canadian NGL and gas processing assets.

Williams agreed today to purchase TransCanada PipeLines Ltd.'s interests in the Cochrane, Redwater, Empress II, Empress V, and Younger NGL extraction plants and the West Stoddart gas processing plant. Separately, Williams reached an agreement to buy Dow Chemical Co.'s 32.5% interest in the Cochin pipeline system, a 1,900-mile, 12-in. NGL and ethylene pipeline extending from Fort Saskatchewan, Alta., to the upper Midwest US and on to Windsor, Ont., with an extension to Sarnia, Ont.

The transactions are Williams's first significant entry into Canada and will make the firm a leading NGL producer throughout North America.

While the value of the deals were not disclosed, TransCanada revealed that its deal with Williams, plus with two smaller divestitures last month, are worth a combined $1.15 billion (Can.).

"These sales, combined with other previously announced sales and agreements, bring TransCanada 80% of the way to its $3 billion [Can.] target from the divestiture of noncore assets," said Doug Baldwin, TransCanada's president and CEO.

TransCanada acquisition
The TransCanada acquisition will be made by Williams's Canadian unit, Williams Energy Canada Inc. Being acquired are: 100% of the Cochrane, Redwater, Empress II, and West Stoddart facilities; 50% of the Empress V complex; and 43.3% of the Younger plant.

The western Canada asset package comprises about 6 bcf/d of gas processing capacity, 225,000 b/d of NGL production capacity, 2,000 miles of NGL pipeline, and more than 5 million bbl of NGL storage capacity. The sale is expected to close in the fourth quarter, pending regulatory and government approvals.

The Cochrane plant, near Cochrane, Alta., can process more than 2.5 bcf/d of natural gas and produce up to 65,000 b/d of ethane and 32,000 b/d of propane-plus. The 130 tonnes/day of liquefied food-grade carbon dioxide recovered at Cochrane is trucked to various users, including well service providers and the food and beverage industry.

The Redwater fractionator and NGL storage facility is in central Alberta, about 64 km northeast of Edmonton. It has a liquids capacity of 65,000 b/d and is connected to various gathering systems that collect liquids from gas plants in central and northwestern Alberta and northeastern British Columbia.

The Empress II and V plants, about 100 km northeast of Medicine Hat, Alta., process natural gas before it leaves the province for eastern markets. The Empress II plant can process more than 2.5 bcf/d of gas and produce 40,000 b/d of ethane and 25,000 b/d of propane-plus. Empress V is under construction and is expected to be complete this fall, says TransCanada. The plant is designed to process 1.1 bcf/d of gas and produce 20,000 b/d of ethane and 11,000 b/d of propane-plus.

The Younger NGL extraction plant at Taylor, BC, has a capacity of 750 MMcfd of natural gas and an NGL production capacity of 32,000 b/d. Ethane-plus produced at Younger is shipped by pipeline to the Redwater facility.

The 120 MMcfd West Stoddart gas plant is about 50 km northwest of Fort St. John, BC. It purifies sour gas by removing hydrogen sulfide and carbon dioxide, recovers a portion of the hydrocarbon liquids content, and injects recovered acid gas into nearby disposal wells. The sweetened gas is shipped by a sales gas pipeline to the Younger plant for additional liquids recovery. The NGL mix extracted from the incoming gas stream at Younger is transported by pipeline to Redwater for further fractionation.

Williams's strategy
Steve Malcolm, president and chief executive officer of Williams' energy services business, said, "This [the TransCanada acquisition] is a key milestone in the life of Williams's midstream business for three reasons. First, it vaults us into Canada for the first time in a prominent way with assets that are located on the doorstep of the Western Canadian Sedimentary Basin, which is a growth basin that has tremendous upside potential. Second, the acquisition reinforces Williams's role as a leading NGL producer in North America. Third, the purchase builds upon our acquisition of Mapco in 1998, when we added around 10,000 miles of NGL pipes to our gathering and processing operations.

"When you couple these points together," added Malcolm, "Williams is positioned to become the first company that has the ability to provide its producer customers with a comprehensive transportation, storage, and distribution network to every major natural gas liquids demand center in North America. This is consistent with our midstream vision and growth strategy."

Malcolm added, "Our midstream business has traditionally been focused in three areas of the United States�the Rocky Mountains, Midcontinent states like Oklahoma and Kansas, and the Gulf Coast. This acquisition expands our scope into a fourth area, western Canada."

Williams's US midstream portfolio includes 12 gas processing plants, 10 gas treating plants, 11,000 miles of gathering lines, 12,000 miles of NGL transportation pipes, an average 135,000 b/d of NGL production, more than 200,000 b/d of fractionation capacity, and nearly 60 million bbl of NGL storage capacity.

Williams other Canadian transaction�the acquisition by a unit of Williams's energy services business of Dow's stake in the Cochin NGL pipeline in Canada�is expected to close in the third quarter. The sale is a key link in Williams's strategy to develop a comprehensive transportation, storage, and distribution network to every major NGL market in North America, says Steve Springer, Williams vice-president and general manager of midstream operations.

"Williams has made a firm commitment to being involved in Western Canada because of the growth projections for gas and liquids production," said Springer. "...Cochin represents a natural bridge between the TransCanada assets and our existing midstream assets in the United States."

Theo Walthie, Dow's business group president for hydrocarbons, energy, and ethylene oxide-ethylene glycol, said, "Dow's ownership interest in the pipeline is no longer a long-term fit with our global strategy for hydrocarbons feedstocks. This is an opportunity to reduce our infrastructure while still maintaining a shipping presence on the pipeline, because Cochin is a fully regulated, common carrier system.

"The pipeline will remain important to Dow as a means of delivering ethylene from our operations in Fort Saskatchewan, Alta., to our operations in Sarnia, Ont."

Why Canadian NGL?
Dan Lippe of Petral Worldwide Inc., a Houston-based consulting firm, believes the move is a smart one for Williams, for the reasons stated by Malcolm plus some others.

"Williams's acquisition of TransCanada's midstream assets substantially expands its presence in western Canada and expands upon its long-standing relationships with the western Canadian NGL industry," Lippe said.

The TransCanada midstream assets include a major "straddle" gas plant in the Empress area of southeastern Alberta (Cochrane) and a major raw mix fractionator in northwestern Alberta (Redwater), Lippe pointed out.

"There is a lot of potential for growth in gas production in western Canada, and especially in the foothills area of Alberta," he said. "Growth in gas production in western Canada should keep straddle gas plants in Alberta running full.

"Additionally, the Cochrane gas plant is the largest producer of ethane in Alberta, and TransCanada's midstream group controls even larger volumes of ethane via acquisition. [This means] Williams automatically becomes a major player in Canada.

"With the completion of Nova's 3 billion lb/year ethylene plant at Joffre, [Alta.], ethane supplies in Alberta become tight. Gas processors in Alberta will be well-positioned to write favorable ethane supply contracts...within the next 5 years," said Lippe. "The justification for Williams's acquisition of TransCanada probably also includes expectations that there will be opportunities to profitably fill the increasing demand for ethane in western Canada."

Another reason Williams may have targeted these assets for acquisition, says Lippe, is the existence of "historical inter-relationships between the Mapco NGL pipeline assets in the Midcontinent [US] and NGL supplies and pipelines in western Canada.

"There is a key pipeline interconnect between Cochin and Mapco at Iowa City," he said. "Williams has an important NGL storage facility at Iowa City and has historically used it to convert high-purity ethane from western Canada to E-P (ethane-propane) mix that is suitable for shipment through the Mapco/Williams Midcontinent pipelines."

TransCanada's offloads
TransCanada has been offloading noncore properties all year. The deal with Williams means the Canadian firm has sold or agreed to sell most of its remaining NGL extraction and gas gathering and processing assets in western Canada.

On July 4, TransCanada closed the sale of its 30% stake in the East Crossfield gas plant and associated petroleum and natural gas rights to Mobil Oil Canada Ltd. And on July 13, it sold its respective 70%, 65%, and 5% interests in the Mosquito Creek, Parkland, and Vulcan natural gas processing plants to AltaGas Services Inc. for $14.6 million (Can.) (OGJ Online, July 17, 2000).

The East Crossfield plant, about 30 km northwest of Calgary, recovers NGL and condensate cryogenically and is capable of processing 108 MMcfd of raw inlet gas at 45% acid gas. The Mosquito Creek and Parkland gas plants, in southwestern Alberta, include sweet gas processing, gathering, and compression facilities. Mosquito Creek has a capacity of 35 MMcfd, and Parkland, 40 MMcfd.

TransCanada has also recently entered into agreements with other purchasers to sell its 100% interest in the Zama area sour gas processing plants and associated gathering system; 100% stake in the Central Foothills natural gas gathering system; 100% interest in the Columbia-Minehead natural gas gathering system; 98% interest in the Cutbank sweet gas processing plant and associated gathering system; and 52% stake in the Clear Hills sour gas processing plant and associated gathering system. These sales are expected to close by late September.

Since December 1999, TransCanada has sold or reached agreements to sell about $2.4 billion worth of assets.

"This will contribute significantly to our primary objective of strengthening TransCanada's financial position," said Baldwin. "As we continue to finalize the sale of noncore assets, our debt load will be reduced, our financing costs will decrease, and we expect [to achieve] efficiencies in corporate costs, which will contribute to improved earnings and cash flow."

The company expects to divest most assets not associated with its core businesses in Canada and the northern tier of the US by yearend. Some of the assets remaining to be sold are its remaining midstream facilities; Cancarb Ltd., its thermal carbon black manufacturing business; and the Express Pipeline System, which transports oil from Alberta to Wyoming.

Other assets for divestiture include TransCanada's interests in an offshore natural gas pipeline system, a gas treatment plant, and offshore gas producing licenses in the Netherlands; the TransGas natural gas pipeline in Colombia; the Accroven SRL NGL extraction facility in Venezuela; the GasPacifico natural gas pipeline from Argentina to Chile; and the Energia Mayakan natural gas pipeline in Mexico.

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