Alberta Energy Co Ltd. said Monday it would sell its Jonah Gas Gathering System in Wyoming for $360 million to TEPPCO Partners of Texas and use the proceeds of the sale to pay down debt.
Jonah, acquired by AEC when it bought McMurray Oil, will be operated by Duke Energy Field Services on behalf of Houston-based TEPPCO. The sale will have no impact on AEC's gas operating or transportation costs, AEC said in a statement.
TEPPCO, the general partner of Texas Eastern Products Pipeline Company, LLC, said the acquisition will generate yearly earnings before interest, taxes, depreciation and amortization (EBITDA) of about $45 million which should grow to about $60 million within five years. The purchase, which was funded using a bridge loan, will add to earnings immediate, TEPPCO said in a statement.
The Jonah purchase gives TEPPCO 300 miles of pipeline, five compressor stations and related metering facilities, which are expected to add $53 million to revenues in the first year. The purchase is expected to close by the end of September.
"We believe these are premier assets in one of the most prolific natural gas basins in the United States and will provide TEPPCO with significant organic growth opportunities," said William Thacker, chief executive of the general partner of TEPPCO in a statement.
TEPPCO said that effective mid-October, the acquisition will enable it to increase its dividend by 15 cents per unit on an annual basis.
Jonah Gas is in the midst of an expansion to increase daily throughput of natural gas from 14 producers in the Jonah and Pinedale gas fields to 700 million cubic feet from 460 million cubic feet.
Shares of Alberta Energy fell 31 Canadian cents to close at C$57.47 on the Toronto Stock Exchange on Monday, down from a year high of C$78.45. Shares of TEPPCO rose 18 cents to $32.06 in New York, just shy of a year high.
AEC said it expects to record a gain exceeding C$100 million on the sale of Jonah, which will be used to reduce debt thereby improving the company's debt to capitalization ratio.
"This sale further enhances AEC's financial strength and flexibility, resulting in pro forma unutilized bank lines of $1.9 billion," said AEC's chief executive Gwyn Morgan.
AEC said its forecast for midstream operating cash flow was unchanged at C$300 million in 2001.
The Jonah assets are owned by Green River Pipeline, LLC and McMurray Oil Co., both of which are wholly owned subsidiaries of AEC.