Subject: Enbridge Buys Koch's East Texas Midstream Assets for $231M
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Date: Fri, 26 Oct 2001 06:31:15 -0700 (PDT)

NGI's Daily Gas Price Index 
published : October 26, 2001
Enbridge Buys Koch's East Texas Midstream Assets for $231M 
Enbridge Energy Partners LP is buying gas gathering, treating, processing and transmission assets in East Texas from Koch Midstream Services for $230.5 million. The package includes all of the East Texas System, which gathers 400 MMcf/d for delivery into the Carthage Hub. 
Enbridge Energy Company President Dan C. Tutcher said the assets are a "natural fit" with Enbridge's existing Texas assets and will significantly expand the company's "geographic footprint" in the region as well as its energy commodity mix. "We expect the acquisition to be immediately accretive to the partnership's distributable cash flow, and excellent prospects exist for further organic growth of the East Texas System.'' 
Enbridge Partners will acquire 1,880 miles of various diameter gathering lines, 37 compressor stations, four gas treating plants with a capacity of 595 MMcf/d and three gas processing plants with a combined capacity of 375 MMcf/d. The transaction is anticipated to close in December. 
The intrastate system derives revenues from the purchase, transportation and resale of natural gas. Additionally, when natural gas liquids fractionation spreads are positive, the option exists to extract NGLs from purchased gas, thus leveraging income with incremental processing revenue, the company noted. The partnership expects that the direct commodity price exposures inherent in gas purchase and resale activities and in gas processing will be suitably mitigated through a hedging strategy. 
It forecasts gas supply available to the system will be 400-420 MMcf/d in 2002. Based on this estimate, the acquisition would contribute incremental EBITDA of between $26 million and $32 million for the year, while distributable cash flow would increase by between $0.10 and $0.15 per unit, with further improvements anticipated in 2003. The forecasts assume that acquisition financing will consist of 50% debt and 50% equity, in line with Enbridge Partners target long-term capital structure. 
Enbridge Partners also reported third quarter net income of $6.6 million, or $0.13 per common unit, compared with net income of $14.2 million, or $0.42 per unit, for the third quarter in 2000. The decline was attributed mainly to an adjustment to oil inventory due to shippers of $5.4 million. The adjustment was the result of what Enbridge said were refinements in the oil loss estimation process, as well as improvements in the accuracy of measuring oil losses while developing new software applications. 
Third quarter deliveries were 1,208 million b/d compared to 1,272 MMb/d for the same period in the prior year. The partnership expects that deliveries will increase over the remainder of the year, to average between 1.30 and 1.33 MMb/d. However, its delivery estimates for 2001 and 2002 are down from prior expectations because of lower production forecasts for conventional heavy crude oil, which stem from the current wide price differential between heavy and light crude. For 2002, growing oil sands production is anticipated to boost full-year average deliveries to between 1.35 and 1.43 MMb/d. 
"The partnership's forecast indicates that crude oil delivery volumes, which have languished for the past several quarters, will start to improve modestly in the near term with more significant increases occurring in the latter half of 2002," said Tutcher. "The major contributing factor will be increased production from the immense oil sands reserves in Western Canada. We also anticipate further successes from our acquisition strategy, which will increase earnings and diversify our sources of income. The partnership's primary objective over the next two to three years is to accelerate the growth of cash distributions to unitholders. To that end, we are confident that the acquisition of the East Texas facilities combined with some improvement in liquid hydrocarbon deliveries will position the partnership to consider a distribution increase in 2002.''