PAA Natural Gas Storage L.P. (PNG), a unit of Plains All American Pipeline L.P. (PAA), has agreed to buy SG Resources Mississippi LLC for roughly $750 million to increase exposure in the Gulf Coast market.
The acquisition will help PAA Natural Gas Storage to gain control of SG Resources’ salt-cavern natural gas storage facility, the Southern Pines Energy Center. It will also provide PAA Natural Gas Storage with access to eight pipelines that serve the Gulf Coast, Northeast, Mid-Atlantic and Southeastern markets.
Located in Greene County, Mississippi, the FERC-regulated Southern Pines storage facility has a permitted capacity of 40 billion cubic feet (Bcf) from four storage caverns. The facility is currently drilling at its fourth cavern and has scope to further expand based on permits and market demand. Inclusion of this facility in PAA Natural Gas Storage assets will increase the partnership’s net capacity by roughly 80%.
Additionally, the Southern Pines facility provides an opportunity to serve the nation’s fastest growing natural-gas power generation market, the Southeastern market. The facility also provides substantial organic growth potential through its strong portfolio of long-term firm storage contracts. Southern Pines is fully contracted for the 2011/2012 and the 2012/2013 storage seasons and has nearly 85% and 70% of projected working capacity contracted for the 2013/2014 and the 2014/2015 storage seasons, respectively.
Given this facility’s strong growth profile and long-term contracts, PAA Natural Gas Storage expects these assets to provide predictable, stable cash flows, even under challenging market conditions. Following the closure of the deal in the first quarter of 2011, PAA Natural Gas Storage targets increasing its annualized distribution for February 2011 to $1.38 per unit and exiting 2011 with an annual distribution rate of $1.45 per unit, representing a 7.4% increase over its current distribution rate of $1.35 per unit.
PAA Natural Gas Storage plans to fund the purchase by issuing new units as well as funds from its general partner, Plains All American. PAA Natural Gas Storage has arranged $800 million to fund the deal and its expansion plans for the first 18 months.
As a result of this transaction, Plains All American’s aggregate ownership in PAA Natural Gas Storage will decrease to 70% from 77% prior to the transaction. Plains All American will continue to own 100% of PNG’s general partner and PNG’s incentive distribution rights.
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