Houston-based PAA Natural Gas Storage (NYSE: PNG) plans to acquire SG Resources Mississippi LLC and its primary asset, the Southern Pines Energy Center gas storage facility, for $750 million.
Southern Pines is a FERC-regulated, high-performance, salt-cavern gas storage facility in Greene County, Mississippi. The facility was placed in service in 2008 and three caverns are currently in operation. The facility is permitted for 40 billion cubic feet (Bcf) of working capacity from four storage caverns. The fourth cavern is currently being drilled, and the facility has the capacity for further expansion, subject to permits and market demand.
Southern Pines has an aggregate of 48,000 horsepower of compression and is permitted for peak injection and withdrawal rates of approximately 1.2 Bcf and 2.4 Bcf of gas per day, respectively. Southern Pines connects directly or indirectly to eight major gas pipelines servicing the Gulf Coast, Northeast, Mid-Atlantic and Southeastern markets.
"Southern Pines' strategic location and excellent pipeline connections provide an opportunity to optimally serve the Southeast market--one of the fastest growing gas-fired power generation markets in North America," says Greg L. Armstrong, chairman and chief executive, PAA Natural Gas Storage.
Armstrong adds that Southern Pines has substantial ongoing organic growth potential, underpinned by a strong portfolio of long-term firm storage contracts. The facility is fully contracted for the 2011/2012 and the 2012/2013 storage seasons and is estimated to have approximately 85% and 70% of projected working capacity contracted for the 2013/2014 and the 2014/2015 storage seasons, respectively.
"As a result of Southern Pines' anticipated growth profile and stable cash flows from long-term contracts, we expect these assets to provide predictable, stable cash flows, even during challenging market conditions," Armstrong says.
PNG has arranged financing of $800 million to fund the purchase price, closing costs, and the first 18 months of expected expansion capital. This financing is composed of $600 million of equity, approximately $262 million of which will be provided by a private placement of PNG units to funds managed by Kayne Anderson Capital Advisors, Tortoise Capital, ClearBridge Advisors and other investors. Plains All American will provide the remaining $338 million of equity capital, including the 2% general partner contribution.
As a result of this transaction, Plains All American's aggregate ownership in PNG will decrease from 77% to 70%. Plains All American will continue to own 100% of PNG's general partner and PNG's incentive distribution rights. The company will also provide $200 million of debt financing to PNG.
Simmons & Co. International and SunTrust Robinson Humphrey are financial advisors to PNG.
The deal is expected to close during the first quarter of 2011.
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