Sempra Energy Completes Acquisition of EnergySouth

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Researched by Industrial Info Resources (Sugar Land, Texas)--On October 1, Sempra Energy (NYSE:SRE) (San Diego, California) completed the acquisition of EnergySouth Incorporated (Mobile, Alabama). The two companies had announced a definitive agreement to the acquisition deal in July 2008.

EnergySouth operates midstream and distribution segments of the natural gas industry, EnergySouth Midstream and Mobile Gas Service. Sempra paid $510 million in cash and took on $224 million in debt to complete the transaction. About 5.77 million shareholders approved the merger, which will pay them $61.50 per share.

Sempra's new EnergySouth operations will be placed into Sempra's Pipelines and Storage division. Sempra Pipelines & Storage develops, builds and operates natural gas pipelines and storage facilities in the United States and Latin America. Sempra's primary reason for purchasing EnergySouth was to acquire EnergySouth's interests in natural gas storage facilities: Bay Gas Storage and the Mississippi Hub project, which is currently under construction south of Jackson, Mississippi. Bay Gas Storage is a high-deliverability natural gas facility in McIntosh, Alabama. It consists of three salt dome caverns with a total working gas capacity of 11.4 billion cubic feet (Bcf) and injection capacity at the facility is 425 million standard cubic feet (mmscf) per day and withdrawal capacity is 1.2 Bcf per day.

Solution mining began at Bay Gas Storage's fourth cavern in April 2008. The fourth cavern will add an additional 5 Bcf of working gas capacity. In addition to the new cavern, there will also be additional compression added. A 6,000-horsepower Toshiba electric-motor-driven Ariel compressor package will be installed, adding to the existing 36,295 horsepower. Cavern 4 and its supporting systems are expected to be online in the first quarter of 2010. EnergySouth has also begun planning for a fifth cavern, which would be a duplicate project of cavern 4. Cavern 5 and its supporting systems are expected to begin construction in late 2009 or early 2010 and be complete in early 2011.

Other enhancements at the storage site include new pipeline interconnects with the Transco natural gas transmission systems and to the Florida Gas Transmission system. The Transco interconnect will be an 18-mile-long, 36-inch-diameter pipeline capable of delivering 750 mmscf per day. It is expected to be in service prior to cavern 4 becoming operational. The FGT interconnect will be an 11-mile-long, 42-inch-diameter pipeline capable of delivering 1,200 mmscf per day.

Mississippi Hub is a new natural gas storage cavern that EnergySouth has recently begun construction on. It will consist of two salt dome caverns with a working gas capacity of 6 Bcf each (8.67 Bcf total gas capacity each) and an injection rate of approximately 0.6 Bcf per day and a withdrawal/delivery rate of 1.2 Bcf per day. Also as part of the project there will be gas compression and withdrawal facilities, a leaching plant for the solution mining, raw water withdrawal and brine disposal facilities, pipelines, metering and regulating stations. The compressor station will consist of three Caterpillar G3616 TALE 4,735-horsepower engine-driven Ariel compressor packages and three 5,000-horsepower electric-driven Ariel compressor packages. EnergySouth anticipates that the first cavern at Mississippi Hub will in service in early 2009 and the second cavern in the middle of 2011.

Mississippi Hub will be connected to three exiting natural gas transmission systems by way of a bidirectional 36-inch-diameter pipeline segments totaling 11.31 miles. There will be four pipeline corridors, North (1.99 miles), East (0.22 miles), West (8.14 miles) and Utility (0.19 miles). Bidirectional pipelines will connect the storage facility with two interstate pipelines, Southern Natural Gas Company (SONAT) and Gulf South Pipeline Company, and CrossTex Energy, an intrastate pipeline.

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